Parabolic SAR

Parabolic SAR is used to indicate trend on a certain pair in forex trading. It is very useful to help us indicating when the right time to exit market is, thus providing traders with a good tool for choosing trade exit points. 'SAR' stands for Stop and Reverse. The Parabolic/SAR indicator was developed by J. Welles Wilder in 1976, creator of RSI and ADX. Parabolic SAR is more popular for setting exit targets than for establishing direction or trend. The unique feature about the parabolic indicator is that it takes into account both the factors of time and changing prices. Most traders unfortunately focus mainly on prices and ignore the effects of the passage of time.

While others recommend to establish the trend first, and then trading with Parabolic SAR in the direction of the trend. If the trend is up, buy when the indicator moves below the price. If the trend is down, sell when the indicator moves above the price. Unlike most other indicators, the parabolic indicator is not a line on the trading chart. It is actually a series of dots that are located either above or below the chart candlesticks or bars. When prices are moving up, the parabolic dots are located below the candlesticks. When prices are moving down, they are located above the candlesticks.

I used Parabolic SAR to determine when the right time to exit is. If you have sell position, when parabolic SAR indicator is below market price then it is the right time to exit from market. And vice versa, if you have buy position, when parabolic SAR indicator is above market price then it is the right time to exit market.

Although this indicator is pretty effective in identifying trend reversals, it works poorly in ranging markets. In ranging markets, you will find that this indicator will often give false reversal signals, and may cause you to prematurely enter or exit into trades.

The parabolic indicator is actually a very useful indicator to adopt in the Forex market because the Forex market often trends strongly.