Parabolic Sar and EMA Trading System For MT4
Please note: This strategy was publicly published in the trading community and is free to use. We do NOT make an attempt to decide if this strategy is profitable or not, because we know that the major factors regarding trading results are the skills/experience of the trader who executes the strategy. Therefore, we are mainly explaining the components and rules of the strategy. If applicable, we are highlighting advantages, disadvantages and possible improvements of the strategy.
The Parabolic Sar and EMA Trading System For MT4 is more like a dynamic trading system as the indicator value often repaints. A small dot below the candlestick suggests the bulls are controlling the market. On the contrary, small dots above the candlestick suggest the bears are in control of this market. Since the system is solely based on the Parabolic SAR and the EMA, we should have a clear idea about these indicators.
What is Parabolic SAR?
Parabolic SAR is a free indicator that you will find on the MT4 platform. The indicator keeps on painting small dots below the candles during the bullish trend. On the contrary, consecutive dots will be printed above the candlestick during the bearish trend.
The space between the Parabolic SAR dots also conveys an important message. When the dots are formed with a big distance, you should expect the trend will get stronger. On the contrary, if the gap between the dots diminishes, you should be expecting a consolidation pattern. By analyzing the gap between the dots, you can set long and short term profit targets in the market.
In the image above, we can see how the Parabolic SAR provided the price direction.
The Parabolic Sar and EMA Trading System For MT4
The dots formed by the Parabolic SAR is more like confirmation signal. To identify our trading zone, we will be using the EMA. EMA levels will be acting as the dynamic support and resistance level for this strategy. And to reduce sharp changes in the slope of EMAs, we can use the system in a higher time frame.
Let's see the key indicators used in this strategy.
- Exponential Moving Average (EMA)- value 5 (green)
- Exponential Moving Average (EMA)- value 12 (red)
- Exponential Moving Average (EMA)- value 34 (black)
- Parabolic SAR- Step 0.03, Maximum 0.2.
Let’s plot these indicators in the chart and see how it looks like
Some of you might not feel comfortable with the Parabolic SAR dot confirmation. In such a case, you can integrate the RSI or the stochastic indicator with this system. Take the long trade during the oversold reading and the short trades will be taken during the overbought reading. But these tools will only act as a confirmation signal. Now let's see the key conditions that we need to check to take any trade.
Parabolic Sar and EMA Trading System For MT4 - Bullish Trade Setup
Bullish Trading Condition
- The price should be trending higher in the 1-hour timeframe.
- EMA 5 should be above EMA 12.
- EMA 12 should be above the EMA 34
- Parabolic SAR should create small dots below the candlestick.
- The dots painted by Parabolic SAR should not be very close.
Entry
After checking the conditions, wait for the price to close above the 5 EMA. Execute the long trade at the opening price of a new candle. But keep your risk factor below 2% of your account balance.
Stop Loss
To determine the stop loss, you should look for the nearest support zone. You may use the EMA lines as a reference resistance line but in that case, the data should be analyzed in the H1 or higher time frame.
Take Profit
The nearest resistance level is going to act as the exit point for the long trade. But we can also determine the TP level by maintaining a 1:2 risk to reward ratio. But in that case, you should be extremely careful in determining the SL price. Failing to identify to SL price will lead to a faulty TP level.
Parabolic Sar and EMA Trading System For MT4 - Bearish Trade Setup
Now let's see how the short trades are taken with the help of this strategy.
Bullish Trading Condition
- The price should be trending lower in the 1-hour timeframe.
- EMA 5 should be below EMA 12.
- EMA 12 should be below the EMA 34
- Parabolic SAR should create a small above below the candlestick.
- The dots painted by Parabolic SAR should not be very close.
Entry
After checking the necessary conditions, open the short trade at the opening of a new candle.
Stop Loss
You may set your stop loss above the nearest resistance line. If you want to use a conservative method, you can also use the most recent high as the reference SL price for the short trade.
Take Profit
The nearest support level should be your desired take-profit zone. By doing so, if the risk to reward ratio gets lower than 1:2, you should ignore the trade signals.
Parabolic Sar and EMA Trading System For MT4 - Conclusion
The functions or the key steps used in this trading strategy might be very easy. But you should be cautious since novice traders often forget to analyze the gap in the parabolic SAR dots. If the distance between the two parabolic SAR dots to small, you must analyze the trend again. If you see the slope in the EMA is nearly zero, you should not trade that asset. try to use this system in a trending asset only.
Note that, Parabolic SAR indicator is very sensitive to small changes in the price. New users of this strategy should make themselves comfortable by using this strategy in the demo account. Once you manage to make money in the demo account by using strategy, you may start trading with real money.
Download the complete system description and the files here: