The parabolic SAR is an indicator used to determine where a trend might end. One important function of most indicators is to catch the beginning of a new trend and also to confirm it; that is for entry strategy. Another important function of most indicators will be to identify, before time, where the trend ends. This will enable the trader to have a well timed entry, and also a well timed exit from the market.
It is worth mentioning that a lot of traders care only about how to get into the market at the right time with the right strategy. They seem to forget that a well timed entry will not pay off so well if there is no well timed exit plan. This is why indicators like the forex parabolic SAR remains relevant in trading.
FOREX PARABOLIC SAR STRATEGY:
The forex parabolic SAR is an indicator use in exit strategies; SAR meaning Stop and Reversal. On the set out of a trade, points are placed on strategic locations in the chart suspected to be potential reversal in the price movement. If, in the process of a trade, there was no need for a reversal, then the points are ignored and the trade moves on till the trader wishes to close out or there is a need for a reversal. The position of the points placed on the chart is determined by the condition of the market. In a trending market, it is situated below the candle in an uptrend, and above the candle n a downtrend.
HOW TO TRADE WITH THE PARABOLIC SAR
Take note of the fact that the forex parabolic SAR strategy is simple to use, so much so that it can be tagged beginner friendly. The key is to follow the dots and act accordingly.
When the dots are below the candles, it is a signal to buy. In the same manner, the signal to sell is when the dots are above the candles. That is really simple for entering a trade, but we are all about how to use the parabolic SAR strategy to exit a trade.
Let us take the USD CAD for instance. Assuming that this pair has been dropping for a while, traders who went short on this pair will wonder when it will stop. The signal that suggests the end of the USD CAD downtrend is three points formed at the bottom of the price. That is the time to exit and take whatever profits made.
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