Parabolic SAR, ADX, OBV and the Awesome Oscillator

Four classic indicators, each answering a different question: where would a trailing stop be, how strong is the trend, is volume confirming the move, and is momentum building?

Parabolic SAR — where is the trailing stop?

Parabolic SAR ("stop and reverse"), another Wilder design, plots dots below price in an uptrend and above it in a downtrend. Each new extreme makes the dots move closer to price faster — the acceleration starts at 0.02 and grows by 0.02 per new extreme, up to 0.2 by default. When price crosses the dots, they flip to the other side.

Traders use SAR mainly as a trailing stop in trends. In sideways markets it flips constantly and gives many false signals. In OrderView you can set the start/step and the maximum.

DMI and ADX — is there a trend at all?

The Directional Movement Index has three lines. +DI measures upward moves and −DI downward moves, each relative to the true range. ADX smooths the difference between them into a single strength reading from 0 to 100.

• ADX below about 20: weak or no trend — range strategies tend to work better.
• ADX above about 25 and rising: a trend is under way; +DI above −DI says it is up, the opposite says down.

ADX says nothing about direction on its own, only strength.

OBV — is volume confirming?

On-Balance Volume adds a candle's volume when it closes higher and subtracts it when it closes lower. The absolute value is meaningless; the direction is what matters. Rising OBV while price moves sideways can show quiet accumulation; price making new highs while OBV does not is a warning that volume is not following. OrderView can add a moving average to OBV to smooth it.

Awesome Oscillator — is momentum building?

The Awesome Oscillator, from Bill Williams, is the 5-period simple average of the median price ((high + low) ÷ 2) minus its 34-period average, drawn as a histogram. Bars above zero mean short-term momentum is stronger than long-term; green bars are higher than the previous bar, red bars lower. A cross of the zero line is the simplest signal.

Using them together

A common pairing: ADX to decide whether to trade a trend at all, SAR to trail the stop once in, and OBV to check that volume supports the move. Adding more indicators does not add more information if they all measure the same thing — combine tools that answer different questions.

Educational information only, not investment advice. All four indicators are in the OrderView web app and Android app.