Often we hear parabolic SAR indicators when we first get to know forex trading but often also do not understand the ability of this indicator. Let’s see how parabolic SAR works:
Simply put, this indicator will tell:
- When the market starts to be in a downtrend, the SAR parabolic indicator will form above the candle and tells you that the uptrend may or may not have ended and the market is likely to move down.
- When the market is in an uptrend, the parabolic SAR indicator will form below the candle and notify that the downtrend is likely to or will have ended and the market is likely to move up.
The parabolic SAR indicator is a smart indicator that prices are moving in the market.
Trading strategies using the Parabolic SAR indicator is one of the simple forex trading strategies because the tools used are only parabolic sar indicators without any help from other forex indicators.
The time frame that is suitable for trading using a parabolic SAR trading strategy is to use 4-hour charts and daily for trading using this strategy. You can also use 1 hour time frames but can cause too many false signals to appear.
If you are trading on a smaller time frame like 1 hour and below, it is important that you realize that a larger trend might override the small trends that you use in trading strategies.
How to Trade Parabloic SAR
To Setup Buy:
- Wait until the parabolic SAR dot is formed under the candle.
- Place a buy stop order 3-5 pips above the highest price of a candlestick with a parabolic SAR indicator formed below.
- Place a stop loss of 5-10 pips below the lowest price of the candlestick.
- Exit trading when the parabolic SAR indicator provides a sell signal (when the parabolic SAR dot is formed above the candlestick)
For Selling Setup:
- Wait until the parabolic SAR dot shape above the candlestick.
- Place a sell stop order 3-5 pips below the lowest price of the candlestick with the SAR parabloc indicator formed above.
- Place a stop loss 5-10 pips above the highest price of the candlestick.
- Exit trading when the parabolic SAR indicator gives a buy signal (when a parabolic SAR dot indicator is formed under the candlestick)
Disadvantages of parabolic SAR indicators
The signal responds quite slowly when the price moves so that the open position in the trade will be made after the price has moved (either up or down).
Because the Parabolic SAR indicator responds slowly, the stop loss placement must be in the ideal location (such as behind the support and resistance levels).
When prices move in a flat or consolidated market, too many false signals will come out.
Advantages of parabolic SAR indicators
If you are a new forex trader, you can use this trading strategy to practice forex trading.
In the parabolic SAR trending indicator market is an indicator of forex trading that works well.
The forex trading strategy described in this page is very basic. If you can combine with other forex indicators such as moving averages potentially will eliminate false signals that occur when the market moves flat or not directed.
Parabolic SAR is a good swing trading indicator and can show you price changes (although it’s always a little late)
Now you know how to use the parabolic SAR indicator on Forex trading by using the trading setup given above.