OK.
Now let's look at some examples so you can understand clearly how the parabolic essay or indicator works
when using this indicator.
I want you to keep two things in mind.
First don't use this indicator alone meaning you'll need to use it with other trend following indicators
like the exponential moving average to avoid false signals.
And second always look at the overall market trend.
If the trend is down the DOT should be above the price candles and on the other hand when the trend
is up the dots should be below the price candle's OK.
Now we'll analyze this chart from the left to the right.
First of all we had that EMJ 20 above the EMEA 9 and both lines were sloping down.
The EMEA 50 was above the red and blue lines.
The price was below these moving averages.
So we can easily predict that this was a strong downtrend.
Now we have an additional downtrend signal the parabolic dots were above the price bars so we could
be more confident that the price would continue to drop.
As you can see on that chart we had a false signal here.
The dots move from above to below the price bars.
This gave us a false uptrend signal.
Why.
It's because the overall trend was still going down.
And that's also the reason why I keep telling you that when using this indicator you must look at the
overall market trend to avoid false signals as you can see we had another uptrend signal here.
The dots were below the candles while it should be above the candles because we were in a downtrend.
So I want you to take note of this when you find that the dots keep staying below the price bars in
form a dotted line that is sloping up while we're in a downtrend.
We can predict that the trend will reverse soon meaning the downtrend is going to end soon and the price
will start going back up the trend reversed when the dots moved from above to below the candles that
EMJ nine crossed above the EMJ 20 and both lines were sloping up so we could easily predict that the
price was going to rise soon.
So it was time to buy low and make an easy profit.
A few weeks later the dots move from below to above the candles and they kept staying above the candles
and formed a dotted line that was sloping downward.
In this case we could easily guess that the trend would reverse soon.
We could confirm this when the blue line crossed below the red line and when the price broke down through
the orange line where the EMJ 50.
So we have a strong downtrend signal here.
Chances are the price will keep going down.
So it's time to sell our coin before the price drops further.
Now let's have a look at another example.
We had an uptrend signal here the blue line crossed above the red line and both lines were sloping up.
The dots moved from above to below the candles that IIM-A 50 was below that EMJ nine and EMJ 20.
The price was also above all of the moving averages.
So we could consider this a strong uptrend.
You see this strategy worked perfectly well for spotting market trends the price of this coin skyrocketed
by over 800 percent from 100 Santoshi to over 800 Santoshi in just one month.
When the coin was in an uptrend the DOT should be below the price candle's So this was probably a false
downtrend signal.
As you may notice we had a resistance level here at around 750 Satoshi.
It prevented the price from rising up many times.
And when the price broke down through the resistance level we could easily guess that the trend would
reverse soon the trend reversed when the EMJ 9 crossed below that EMJ 20 and the dots move from below
to above the price candle's the downtrend signal was stronger when the price dropped below that EMJ
50.
The downtrend continued until the dots move from above to below the candles you see the dots kept staying
below the price bars while the overall trend was down.
This would tell us that the trend would reverse soon.
And we had an uptrend signal when the blue line crossed above the red line
OK.
Another example.
Now let's analyze this chart quickly.
We had an uptrend signal here.
The dots move from above to below the price bars.
The blue line crossed above the red line and the price broke up through the orange line.
So we could easily predict that this was a strong uptrend.
We had several false downtrend signals here because the overall trend was up.
The dots should be below the price candle's the trend reversed when the dots moved from below to above
the candles and that EMJ nine crossed below that EMI 20 the downtrend signal was stronger when the price
broke down through the EMJ 50 the downtrend continued until the dots moved from above to below the price
bars.
You see the dots kept staying below the candles while the overall trend was down.
So in this case we could easily guess that the trend was going to reverse.
The trend reversed when the dots move from above to below the candles and the blue line crossed above
the red line.
As you can see on the chart we've had another downtrend signal here.
The price has already broken down through the EMJ 50.
So this is going to be a strong downtrend.
And what I would do now is to sell my coin so I can buy it back at a lower price later when the trend
reverses
OK.
Let's have a look at another example.
As you can see on the chart we had an uptrend signal here.
However this uptrend was weak because we had a resistance level at around 70 200 Satoshi that could
prevent the price from rising up.
So in this case we could guess that the trend would likely reverse when the price failed to break up
through the resistance level many times.
So what I would do in this case is to sell my coin at about seven thousand Santoshi or three percent
below the resistance price that trend reversed when the dots move from below to above the price candles.
And when the blue line crossed below the red line the price was below all of the moving averages.
So we could consider this a strong downtrend.
We had a false uptrend signal here because the overall trend was down.
The trend reversed again when the EMJ 9 crossed above the EMEA 20 and the dots move from above to below
the candles the price broke up through the EMJ 50.
So we knew that this was a strong uptrend.
You see the dots kept staying above the candles while the overall trend was up.
We also had a resistance level here at about 6200 Satoshi that could stop the price going up.
So we could guess that the trend would reverse when the price failed to break up through this resistance
level.
We had a strong downtrend signal here when the blue line crossed below the red line.
The dots move from below to above the candles and the price broke down through the EMJ 50.
So now you've learned everything about the parabolic S-A are and how to apply it to make a profitable
trade in the next lesson.
We'll dive into another technical indicator that can help you detect trend reversals.