The Relative Strength Index indicator and trendline combination makes for a nice trading system. The RSI measures the overall strength of the market, and has 2 major levels, the 70 and the 30. Above the 70 level shows a very strong bullish momentum, while a move below the 30 shows an extreme bearish momentum. When used with trendlines, this can give you an idea as to when a trade could be placed. For example, on the USD/JPY chart, weekly time frame we have a nice uptrend line that is accompanied by a strong reading in the RSI. However, before the trendline was broken to the downside, the RSI slipped underneath the 70 handle. By doing so, this suggests that perhaps the market is starting to run out of strength, and thereby fired off a sell signal. You can see that the market fell initially, and then tested the trendline for resistance. As that held, the market fell rather significantly.

The parabolic SAR system uses the parabolic SAR indicator to determine the short-term momentum. The parabolic SAR is typically used to determine where a stop loss order should be placed. When using the parabolic SAR system, it assumes that the trader is fully invested in the market. In other words, you are either long or short, and never flat. The parabolic SAR is a series of dots placed on the graph, either above or below the current price depending on the momentum. A small dot is placed below the price when the trend of the asset is upward, while a dot is placed above the price when the trend is downward. The accompanying DAX chart shows various places where trade signals are triggered. When the dots switch sides of price, it means that you should be going in the other direction. Stop losses are moved right along with the dots, as it tells the trader when the potential move is over. The biggest issue is that you need some type of trend of though, so the parabolic SAR tends to do better in moving markets, as opposed to consolidation.