Forex Indicators_8. Forex Parabolic SAR

Lesson 8: Forex Parabolic SAR

Parabolic SAR is a trend-following indicator which consists of dots above and below
the price. Dots above the price show that the price is trending down. Dots below the
price indicate that the price is trending up.
Although there are traders who use this indicator for entries, I would only use it for
trailing my stops. As the price is in an up-trend, the Parabolic SAR is placing dots
below the price. If you enter the market here, SAR serves as a brilliant indicator to
decide your closing price.

All you need to do, is to monitor the indicator when SAR is placing the dots above
the price, indicating a start of a retracement. If SAR makes only two dots before
flipping below the price again, it shows that the recent price trend was no more than
a pullback - in which case you should leave your trade open.
If however, SAR forms three dots above the price, it is signalling that there may be a
deeper retracement ahead - or even a trend reversal. Therefore, it’s a good idea
idea to take some profits from your trade, or even close it altogether.
Remember; the Parabolic SAR works only in trending markets. When used in range
bound conditions, you will get too many false signals.