What is the Parabolic SAR indicator?
The Parabolic Stop and Reverse indicator is a tool used in technical analysis of the prices of a certain financial asset. The SAR tracks the prices and calculates for the trend that the price is going towards, and displays the calculation as a series of dots appearing above or below the price of the asset being traded.
The “stop and reverse” means that the indicator goes along with the trend, which means that if the trend of the prices stop, and then reverse, then so will the indicator. This indicator is often used by traders to predict the future short term momentum of the financial asset. By doing so, it helps the traders know when to place stop orders and take profit orders.
For this guide, I will teach you the basics of this useful indicator, and guide you through setting it up for the first time in Binomo.
Setting up the Parabolic SAR indicator on Binomo
First and foremost, log in to your Binomo account. Choose what financial instrument you are willing to trade from the drop-down box on the top of your platform’s interface. Once you have chosen your asset, choose to display using the candlesticks chart.
After that, press the indicator button on the left border of your interface – it is the bottom-most square of the top half. When you press it, it’s labeled as “Indicators”. From the pop-up choices there, choose the Parabolic SAR indicator.
If you’ve set it up correctly, you should be able to see dots that follow each candlestick and be able to observe them appear either above or below the prices. They can also suddenly reverse – hence the “stop and reverse” on their name.
Using the Parabolic SAR on Binomo
The indicator is pretty simple – if the dots are below the candles, this means that the trend is going to rise in the next few moments. If the dots are above, this means it’s going down. If it flips, then prepare to see a sudden reversal in trends.
Most traders use the SAR to predict and observe trend reversals. If used properly, this indicator can help you enter the market in the proper position to take advantage of the trend that the indicator is showing before it disappears.
For example, the prices are showing an upwards trend – and the SAR validates this by moving below the prices. Suddenly, even though the prices haven’t shown anything concrete yet, the indicator reverses which indicates a sudden downtrend. It would be best to enter a selling position right then because the prices would likely fall.
The same technique should also be used when the reverse happens and the indicator flips downward when it was originally moving up – which indicates the coming of an uptrend. It is now time to enter the market with a buy order.
Another method to further collaborate the strength of this indicator is to take note of the very first dot that appears after it crosses the prices and indicates a reversal of a trend.
If, for example, the prices are in a downtrend and the SAR flips to below the prices indicating an uptrend, look at the price. If it’s a green candle, it further validates the accuracy of the SAR’s prediction of an uptrend. You may then want to enter a buy position and hold it for some time. The same is true for when the reverse happens.
Other considerations when using the Parabolic SAR
This indicator is one of the best indicators out there, as its predictions are normally pretty reliable. Its real strength lies in long positions, as even a small fluctuation in the prices can mess up your patterns when trading extremely short timeframes. Trading long will protect you from fluctuations so long as you traded with the right forecast from the SAR indicator – as shown by the multiple examples that I listed above.
Trading long brings out the true potential of the Parabolic SAR indicator, while trading short will reduce its reliability.
The Parabolic SAR can be practiced best using a Binomo practice account. The demo has realistic conditions that you can use to your training advantage for testing out the SAR indicator. If you have any tips and tricks for the Parabolic SAR that you’d like to share, feel free to discuss them in the comments section below!
Good luck on your trading journey with Binomo!