MACD + PSAR Setup

The MACD + PSAR Setup indicator provides a comprehensive trend-following framework that combines momentum, volatility-based trailing stops, and breakout signals to identify high-probability trade entries.

Usage

The tool is designed to identify "Buy on Dip" or "Buy on Breakout" opportunities by filtering signals through a long-term trend filter.

• Long Signals: A green diamond appears when the MACD is in a bullish crossover, price is above the Parabolic SAR, and a breakout occurs (price closing above the highest high of a specific period). This is further confirmed if the price is trading above the Directional EMA (default 200).
• Short Signals: A red diamond appears when the MACD is in a bearish crossunder, price is below the Parabolic SAR, and price breaks below the lowest low of the specified period.
• Trend Visualization: The background color provides an immediate view of the current market regime. A green background indicates a bullish environment where price is above both the PSAR and the long-term EMA, while a red background indicates a bearish environment.
• Watchlist Strategy: Users can monitor MACD golden crosses as preliminary signals and wait for the Green Diamond confirmation (PSAR/Breakout alignment) before executing a trade.

Details

The indicator integrates four distinct technical components:

1. MACD (Moving Average Convergence Divergence): Acts as the primary momentum oscillator to identify potential shifts in trend direction.
2. PSAR (Parabolic Stop and Reverse): Used for trend confirmation and as a dynamic trailing stop reference.
3. Breakout/Downtrend Logic: Uses price action relative to the highest/lowest points over a user-defined lookback period to ensure momentum is actively moving in the direction of the trade.
4. Exponential Moving Average (EMA): Serves as a macro trend filter (typically set to 200 periods) to ensure trades are taken in the direction of the institutional trend.

Settings

PSAR Settings

• PSAR Start: The initial acceleration factor for the Parabolic SAR.
• PSAR Increment: The step value by which the acceleration factor increases.
• PSAR Max Value: The maximum limit for the acceleration factor.

MACD Settings

• Fast Length: The period for the shorter EMA used in MACD calculation.
• Slow Length: The period for the longer EMA used in MACD calculation.
• Source: The price data point used for MACD calculations (default is Close).
• Signal Smoothing: The period for the EMA of the MACD line.

Trend & Breakout Settings

• Direction Source: The price source for the long-term trend filter.
• Direction EMA Period: The length of the EMA used to determine the primary trend direction.
• Breakout Length (BO): The lookback period used to identify new highs for bullish breakouts.
• Downtrend Length (DT): The lookback period used to identify new lows for bearish breakdowns.

FAQ

How do I interpret the background colors?

A green background suggests that the price is trending upward above the long-term EMA and the PSAR, while a red background indicates the price is trending downward.

What do the diamond symbols represent?

The green diamond represents a confirmed bullish setup where momentum, trend, and price action align. The red diamond represents a confirmed bearish setup.

How can I access the MACD + PSAR Setup?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.