Maximize Your Trading Potential with the Parabolic SAR Indicator

 

by: Ivan Cavric

The Parabolic SAR (Stop and Reverse) is a technical analysis tool that was developed by J. Welles Wilder Jr. It is designed to identify potential reversals in price trends and can be used by traders to enter or exit trades. In this article, we will explore how the Parabolic SAR can be used to make more informed trading decisions.

The Parabolic SAR is plotted on a chart as a series of dots, which are placed either above or below the price bars. The position of the dots indicates the direction of the trend, with dots above the price bars indicating a downtrend and dots below the price bars indicating an uptrend.

The Parabolic SAR is based on the idea that as the price of an asset increases, the acceleration of the price increases as well. This acceleration is represented by the SAR dots, which move closer to the price bars as the trend continues. When the dots are close to the price bars, it indicates that the trend is strong and may continue. When the dots are further away from the price bars, it indicates that the trend may be slowing down and a reversal may be imminent.

Traders can use the Parabolic SAR to enter trades by looking for a reversal in the trend. For example, if the dots are below the price bars and the price starts to break above the dots, it could be a signal to buy. Conversely, if the dots are above the price bars and the price starts to break below the dots, it could be a signal to sell.

In addition to using the Parabolic SAR to enter trades, traders can also use it to set stop-loss orders. By using the SAR dots as a trailing stop, traders can protect their profits as the trend continues. For example, if a trader buys an asset and the trend starts to move in their favor, they can use the SAR dots as a trailing stop to lock in profits as the trend continues. If the trend starts to reverse and the price breaks below the SAR dots, the stop-loss order will be triggered and the trade will be closed, protecting the trader’s profits.

It is important to note that the Parabolic SAR is not a standalone tool and should be used in conjunction with other analysis techniques. It is also important to remember that all technical indicators have their limitations and should not be relied upon exclusively. As with any trading strategy, it is important to test the Parabolic SAR on historical data before using it in live trading.

In conclusion, the Parabolic SAR is a useful tool for traders looking to identify potential reversals in price trends. By using the SAR dots as a trailing stop, traders can protect their profits as the trend continues. It is important to use the Parabolic SAR in conjunction with other analysis techniques and to test it on historical data before using it in live trading.

Comments

Post a Comment

Popular posts from this blog

TEN REASONS TO START TRADING FOREX

Image
by:  Ivan Cavric More and more well informed investor and entrepreneurs are diversifying their traditional investments like stocks, bonds & commodities with foreign currency because of the following reasons: 1) FOREX is the largest financial market in the world. With a daily trading volume of over $1.5 trillion, the spot FOREX market can absorb trading sizes that dwarf the capacity of any other market. In fact, when compared with the $50 billion daily market for equities or the $30 billion futures market, it becomes quickly apparent this gives you, and millions of other FOREX traders, almost infinite trading liquidity and flexibility. 2) FOREX is a True 24-hour market. The FOREX Market never sleeps. Trading positions can be entered and exited at any moment around the globe, around the clock, 5.5 days a week. There is no waiting for an opening bell as in the case of trading stocks. It is a 24- hour, continuous electronic (ONLINE) currency exchange that never closes. This is very de
Read more

Currency Trading Tips For Beginners

Image
By:  Ivan Cavric Currency trading is a platform where individuals speculate on the exchange rate between two currencies. Traders buy and sell currencies hoping to realize a profit. In order to succeed in currency trading you will need a source of accurate and timely information. You'll need to familiarize yourself with a whole new language. When you start currency trading you'll learn what a market trend is and how it will affect your trading. Trends move up, down and sideways. There are also trend classifications within market trends. These classifications are intermediate, short-term and long-term trend. You'll learn how to look at and understand basic trend lines, which is the most valuable trading. You'll learn about channel lines and support levels. When you enter currency trading you'll be able to make sales online 24 hours a day, 7 days a week, unlike the Stock Market. Many online brokers offer commission free trading and you'll want to make sure that yo
Read more

“Gold, A Hedge Against The Perils Of Interesting Times”

Image
By:  Ivan Cavric While paper-based investments and real estate are vulnerable to effects of changing times, gold soars. A precious metals investment may save a portfolio when all else fails. The old Chinese curse, “may you live in interesting times”, has particular relevance to the current epoch of U.S. history. There’s a lot going on right now, much of it scary. Major investors around the world are responding to the events of our perilous age by sinking their dollars, deutschmarks and yen into gold, silver and palladium; Bill Gates, Warren Buffet , and billionaire speculator George Soros to name but a few. Big financial institutions like the Central Banks of Russia and China are also leaping onto the metals bandwagon driving the price of these precious commodities ever higher. This is spurring a gold rush not witnessed since the Misery Index years of the 1970s. Many financial experts now view gold in particular as an island of stability in a paper-based investment market growing stor
Read more