Parabolic SAR, which doesn’t include lines on the chart, is the most widely used indicator. Although it is widely used by trend traders, range traders can also use it. This indicator can spot entry and exit signals, which provides long-term opportunities.
Parabolic SAR begins with a dot below the price. If the price is not changed, the dots will move exponentially to catch up to the individual market lows.
The rate of change between dots in the Parabolic SAR is very slow, even though it started just 5 bars ago. As you can see, however, as you go from 20-30 bars into an opening, the distance between each dot grows rapidly. This is like the PSAR saying that this trend must end soon. It is waiting for confirmation that the trend will change.
These dots indicate whether the price is above or below it. If they start below the price, they flip when the low touches the last bar. The dot flips at the exact moment the bar’s lowest point touches the PSAR value of the last bar.
The price of the dot is now higher than its value. This is a valid sell sign. Sell signals work in the reverse order of long signals. Waiting for the bar to touch the dot will create a new buy signal.
This indicator will give you an always-in-the market reading. It can be either short or long. The signals are purely back-and-forth between sell and buy signals.
This indicator is the most basic way to use it in a trending strategy. When the price falls below the dot, buy. Sell when the price rises.
The GBPJPY chart is my favorite Parabolic SAR strategy. This currency pair is susceptible enough to trends to produce signals with significant volatility. The four-hour timeframe is sufficiently short to allow it to exit trades in a relatively short period of time.
Waiting for the dots to catch-up can result in losing substantial ranges on profitable trades. You can only do something about it by using the PSAR acceleration values. Click on the chart to select indicators and Parabolic SAR. You can adjust the inputs window to show step and acceleration.
If you would like to test the Parabolic SAR or need a demo account for MetaTrader, click the link below. This will take you to OANDA’s website where you can immediately get one.