Parabolic SAR indicator is a trend indicator, which tells Forex traders about price stop-and-reverse points as well as trend direction. Its concept of usage is easy to understand from the first look – Parabolic SAR appears as a set of dotted lines, where each dot represents certain time period.
How to Use Parabolic SAR Indicator in Your Forex Trading Strategy?
When price is above Parabolic SAR dots, Forex traders should be holding Long positions only. Once Parabolic SAR dots come on top of the price – it is time to change trading positions to Short.
Parabolic Sar indicator literally allows being in trade all the time:
- PSAR dot is above the price indicates downtrend price swings in the Forex market
- PSAR dot is below the price indicates uptrend price swings in the Forex market
So, Parabolic SAR is developed to keep stop loss level moving adjusting to new prices and thus locking profits on its way.
The formula of Parabolic SAR includes an “acceleration factor” using the power of exponentiation, which allows to react to market changes fast as the trend starts to accelerate. At the beginning, new Parabolic SAR dots are placed close together and then accelerate as the trend advances.
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