The parabolic SAR is a tool that is developed by the same person creating the RSI, Welles Wilder. It is a very simple indicator that is mainly used to indicate the end of a trend or the setting of stop loss by some traders.
The SAR behind the word Parabolic refers to Stop And Reversal which can help traders to identify entry and exit position of their trading position. This indicator makes use of dots as a visual tool to help traders clearly identify the direction of the price movement. When the trend is up, the dots will be under the candlesticks and when the trend reverses to down, the dots will flip side to be formed above the candlesticks.
How To use Parabolic SAR
Basically, the parabolic SAR is a simple to use tool that can help to give forex buy sell signals to traders. When the dots are formed below the candles, it is a BUY signals and when the dots are formed above the candles, it indicates a SELL signals.
However, it is best to use this tool together with the help of trend. To be able to trade successfully with parabolic SAR, you should first identify the long and short term trend of the market and then place your trade in the direction of the trend according to the signals given by the SAR.
Advantage of Parabolic SAR Indicator
– It is a very simple to use indicator as you just have to look at the position of the dot to understand what it is conveying to you.
– You do not have to make any calculation as it is all automatically calculated by the program of your trading platform.
Disadvantage of Parabolic SAR Indicator
– It creates too many signals within a period of time as the price moves up and down.
As a whole, the PSAR is a good tool to use if it is combined properly with other indicators.