How to use Parabolic SAR
Parabolic SAR indicator refers to classic Forex market indicators. It allows to analyze the price maneuvers and to determine the turning points. The SAR abbreviation means “stop and reverse” and describes working principles of this tool excellently.
How Parabolic SAR works
This indicator is presented on the chart as a series of points which are higher or lower than price. It can be used for the following purposes:
- for trend determining,
- for sliding stop-losses placement,
- to receive signals for closing and opening deals.
The indicator’s dotted lines with the uptrend are below the level of price maneuver, with a downtrend higher. Parabolic SAR follows the price until the end of the trend and its reversal. As soon as trend begin to weaken the indicator moves closer to the price maneuver and intersects with it in the moment of trend’s ending and forming of a new one, thereby signaling a price turn. Parabolic SAR is most often used with ADX indicator (average directional index) which is also considered to be classical instrument used in Forex trade. If ADX indicator is lower than level 25 on the chart then the price is in the flat and it is too early to make trading decisions.
The ADX indicator’s advance above level 30 refers about strong enough trend. Parabolic SAR usage on this step will be very effective. It means that it is time to place deals and sliding stop-loss in the trend direction.
Advises for Parabolic SAR using
- If the indicator curve approaches closely to the price chart or crosses it, then take-profit is advisable at this point.
- If the price remains in flat for a long time and the Parabolic SAR forms points indicating the sale or purchase, it is worthwhile to wait with the opening of trade transactions.
- The signals of this indicator must always be checked with the help of other tools that determine the strength and direction of the trend.
- The greater the distance between the indicator points is, the stronger the trend. If the distance between the points of the Parabolic SAR is very large, opening deals at this moment is dangerous. It suggests that the trend has gained strength, and the probability of its correction or reversal is quite large.
- If the Forex market is in the flat do not trust the indications of the Parabolic SAR indicator.
- There is no need to rush in opening deals just after the Parabolic SAR curve has crossed the price chart. This can be a false signal. Therefore, you should wait for the indicator to form another 3-4 points in the direction of the emerging trend.
- The Parabolic SAR indicator gives signals with a slight delay. Therefore, close trading positions should be directly at the time of crossing the curve of the indicator with the price chart. If this time is missed, it is possible to lose part of profits.