Parabolic SAR is used as a time or price indicators. This concept was introduced by J. Welles Widler and is also descried in a book named “New Concept in the technical trading system”. Parabolic SAR is made up two words, parabolic and SAR in which parabolic means curve shape drawn on the chart and the SAR means the stop level and the reverse level. Parabolic SAR is sometimes also called as a reversal system because it allows the traders to follow the stop level and the reverse level in a downtrend or an uptrend until the trend reverses at a SAR point. This indicator is used to determine the stop points and the point at which a trend can reverse but it is most popular for determining stop points.

Unlike most indicators that ignore volume and time, Parabolic SAR derives more concrete signals by using time in calculation. Parabolic SAR is highly objective and needs less work of personal interpretation. The signals given by this indicator are clear to read and easy to interpret. The methods to incorporate the Parabolic SAR to your Forex Trading activities are explained below.

Simple Buy/Sell mechanism

This method can signal short and long trades. If the value is less than the price then a long trade is suggested to traders and investors and if the value is more than the price a short trade is suggested. It is a trend following system that produces weak signals commonly. So to avoid any mistakes, traders and investors should confirm the signals with the help of range filter such as Linear Regression Slope. The confirmation will help the traders to ensure that the trend is strong. Traders and investors can also confirm the signals with breakouts of pullbacks and ranges and trading after this confirmation will increase the winning rate.

Trailing Stop Loss

The Parabolic SAR can be used as a trailing stop loss. This indicator produces both entries and exits of different nature. The entries produced by this indicator are generally weak and fail most of the times but the exits that this indicator produces are very good and allow the traders and investors to exit timely and this is the reason why this indicator is used as a successful trailing stop loss mechanism. The Parabolic SAR can be used to set the trailing stop loss for an open position and this helps to protect the profit of the traders and investors. See a Parabolic SAR in the figure below.

If you are looking for a successful indicator when you want to close an opened position then Parabolic SAR is the best choice. Don’t depend much on this indicator when you are searching the entry points because Parabolic SAR is not very successful in determining the correct entries.

How to draw Parabolic SAR

Open a chart for any currency pair. Click on the Insert menu, click on the Indicator, click on the Trend and then click on the Parabolic SAR.

Insert -->Indicators -->Trend -->Parabolic SAR

See the picture below to understand better.

After selecting the Parabolic SAR as shown above, the Parabolic SAR window opens as shown in the picture below.

Fill the values in this window as according to requirements and the Parabolic SAR will be automatically drawn on your chart.

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