• Directional Movement
  • ADX Indicator
  • ADX  Signals

Directional Movement System

  • Is it trending or is it not?

  • (ADX), (-DI) and (+DI) represent the “Directional Movement System”

  • Identifies whether the market is trending

  • Categorizes securities by their trending characteristics

Directional Movement

Plus DM (+DM)

Minus DM (-DM)

Minus DM (-DM)

Zero DM

Directional Movement Index - DX

  • The sum reflects the total of the percentage of days that experienced directional movement
  • Wilder recommends smoothing out the action of the DX in order to make it indicative of price movements to both the high and low extremes
  • Smoothing is done by taking a 14-day average of DX, creating the average directional movement index or ADX

Interpretation – Trend Strength

  • ADX determines if a security is trending or not
  • A strong trend is present when ADX is above 25
  • No trend is present when ADX below 20

Interpretation – Trend Direction

  • Plus DI and Minus DI determine trend direction

  • Bullish signal when +DI crosses above -DI

  • Bearish signal when +DI crosses below -DI

Interpretation – Directional Movement System

  • The ADX together with the +DI and the –DI create the Average Directional Movement

  • DI signals should be considered when ADX > 25

  • Bullish signal when +DI > -DI and ADX > 25

  • Bearish signal when + DI < -DI and ADX > 25

Interpretation – Extremes

  • The best trend-following signals are given  when the ADX is at a low number and then moves above 25

  • If the ADX is above both DIs and is at an extreme reading, this means that the trend has been in force for some time

  • The high reading in the ADX is a form of overbought or oversold

  • Not a good point for entering new trades

Directional Movement System - Conclusion

  • Trade only trend-following systems when ADX rating is above 25

  • Use the crossovers of the +DI and -DI as signals for entering and exiting the market

  • When ADX is above both DIs and at an extreme reading, this reflects extreme conditions and warns of a correction

In this section, you will learn

  • Parabolic SAR
  • Calculation
  • Signals

Parabolic SAR

  • Parabolic Stop and Reverse (SAR) Indicator was developed by J. Welles Wilder
  • It is also known as Parabolic SAR, just Parabolic, or even PSAR

  • SAR is a trend following indicator that follows a  parabolic arc
  • SAR is also used as a trailing stop technique for money managemen

Parabolic SAR - Calculation

  • It uses the most recent Extreme Price (EP) along with an Acceleration Factor (AF)


  • SAR today = SAR yesterday + AF (EP – SAR yesterday)


  • EP is the highest high of an uptrend, or the lowest low of a downtrend


  • AF is by default 0.02 (2%), increasing by 0.02 (2%) each time a new EP is reached with a maximum of 0.20 (20%)

Parabolic SAR - Plot

  • SAR is plotted as a dotted line, above and below the price


  • When prices are above SAR, the market is considered to be bullish
  • When prices are below SAR, the market is considered to be bearish


Parabolic SAR – Bullish Signal

  • When the price crosses above the SAR, a long position is entered
  • SAR point starts relatively far from the price and rises as long as the uptrend is in place
  • As the uptrend continues, the SAR accelerates closing its gap between the price
  • SAR follows prices like a trailing stop and continuously protects profits as prices advance
  • When the price crosses below the SAR, the long position is closed and a short position is entered

Parabolic SAR – Bearish Signal

  • When the price crosses below the SAR, a short position is entered
  • SAR point starts relatively far from the price and drops as long as the downtrend remains in place
  • As the trend continues, the SAR accelerates closing its gap between the price
  • SAR follows prices like a trailing stop and continuously protects profits as prices drop
  • When the price touches the SAR, the short position is closed and a long position is entered


Parabolic SAR – Conclusion

  • PSAR is a trend-following system that works very well during trending periods
  • In a ranging or sideways market however, It gives a lot of false signals
  • SAR is also used by traders as a trailing stop-loss technique that allows profits to run and minimizes losses
  • It’s a complete trading system that is easy to follow and provides more discipline to the trader




The Story of Desmond Leong

Desmond is your average trader. He started off blowing up 7 (or more.. lost count) accounts amounting to more than 500k, tested over 30 Expert Advisors (EAs) to no success and spent over 10k on stupid useless courses.

Today he runs an award winning trading team and provides market analysis and webinars to some of the largest brokers such as IC Markets, XM, Axi, Tickmill, FXCM, VantageFX, easyMarkets and more.

He now has a simple goal: Creating an army of traders who trade profitably together and keep each other accountable. Guiding them with the most comprehensive no-BS free tutorials so that no one ever needs to go through the pain he went through himself to become a profitable trader.

My Trading Strategy


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