What is the Parabolic SAR?
The Parabolic SAR (Stop and Reversal) is another technical analysis that is used to help traders forecast potential shifts in the market. The Parabolic SAR aims to show the direction in which an instrument is moving towards. The main aim of this indicator is to show the potential entry and exit levels. This indicator was created by J.Welles Wilder Jr. who ironically is also the creator of a well known and popular indicator, RSI (Relative Strength Index).
Like the RSI and many other trading indicators, the Parabolic SAR can be predominantly found and used on most online trading platforms. So there is no need for any manual calculation of data or numbers to be able to apply them to charts.
Below we look at this indicator in more detail, including how to find it, which platforms it is available on, and how to use it in your trading strategy.
Guide how to trade using Parabolic SAR
Looking for long or trading opportunities in 2020 using the Parabolic SAR? There are many online brokers like eToro which provide interested investors with the opportunity to trade volatile markets using this indicator and are perfect for long or short traders. If you are interested in getting involved in this rapidly moving market by using the Parabolic SAR indicator, below is the easy process to follow to get started.
Using eToro as an example.
Step 1: open a broker account
Step 2: decide your investment level
Step 3: deposit and start trading with MACD
Parabolic SAR Indicator
Before we get into details on how to actually set and implement the indicator, let’s get a better understanding of how it looks and what it means if you are using this. When looking at the actual charts, the Parabolic SAR appears as a series of dots that are plotted over and under, or above and below the flow of the charts. This is one of the easier indicators to look at visually and understand without too many complexities. See an example of this below.
As can be seen, the dots are plotted amongst the candlesticks. The dots which are above are usually a signal that of bearish intent. Whereas the dots which are usually below are a sign of bullish intent. These intentions are based on the flow in which the markets have been trading leading up to that point. Previously stated, although different the fact that J.Welles Wilder Jr. also created the RSI, and the similarities in them are apparent, in identifying the specific areas where either more buyers or sellers exist.
A change from bullish to bearish or vice versa usually takes place when the dots switch from being either above or below the chart patterns. The wider the distance between the dots, the wider the trends they are tracking. The closer they are aligned to one another, the more uncertainty we see taking place.
How to set the Parabolic SAR indicator?
Depending on the platform which you are using, it is fairly simple to set up the Parabolic SAR on an actual chart. For us, we will use MT4 with any examples we do as it is one of the most popularly used platforms by new and existing traders. On the MT4 platform once you select the “indicator” list and then go into “trend indicators” you will see the Parabolic SAR listed. Once you choose this, it will give you the parameters to use.
The values you see below are known as the “acceleration factors” and the parameters are there to track to the highest high or lowest low of a previous up or downtrend which is known as the “extreme points”.
How can you use Parabolic SAR to buy/sell?
In order to buy or sell using the Parabolic SAR you need to firstly identify the areas where the buyers and or sellers usually look to enter. As detailed above the bullish and bearish intents are determined by the positioning of the dots, above or below.
From the arrows on the chart, you can see which show the intent type. Generally, a trader who sees the dots just starting off at either side may look at that as a chance to buy or sell, as they believe the trend would have only just started.
Also in using the RSI, this compliments the Parabolic SAR. The RSI can be seen at the bottom of the charts and shows that although the intent seems to be showing us a bullish signal, the markets have been overbought, so a potential swap of the SAR from bottom to top may be imminent leading to the potential for a short or bear trade.
Best Brokers for Parabolic SAR analysis
The best brokers for Parabolic SAR are usually those who allow the use of this Oscillator, have a range of liquidity providers and markets, good execution speeds and generally reliable. Trading volatile markets can be risky and expensive, so brokers would need to offer the above and more, to help ease your mind when trading with them at the best cost.
Here is our list of the best brokers for parabolic SAR trading: