The Parabolic SAR indicator is a trend-finding tool. Learning how to figure out when the trend in an investment ends is critically important to knowing what to do next. The Parabolic SAR tool helps traders find where the trend may be ending and a new one beginning much better than they could before they were using this tool.
The Parabolic SAR appears as a series of dots either above or below the price movement of the currency pair that you are looking at. If the dots appear above the price movement, this is a bearish sign. If they appear above, this is seen as a bullish sign.
Trading Using the Parabolic SAR
This indicator is about as simple as it gets. In simplest terms:
1. When the dots are below the candles, it’s a BUY signal.
2. When the dots are above the candles, it’s a SELL signal.
What you are looking for as a trader using this indicator is when the Parabolic SAR begins to move from one side of the price movement to the other. For example, if the Parabolic SAR is currently above the price action and starts to dip below it, then you may have spotted the end of a trend. You will want to get out of your trade, and perhaps consider taking the opposite side from what you were just on when you see that the Parabolic SAR has made a reversal like that.
Spotting an Exit Using the Parabolic SAR
You don’t want to put yourself in a spot where you stay with your trade regardless of the fact that you may have spotted the end of a trend. You need to bail out of your trade as soon as you spot this because it is likely an indication that your trend has ended and another one is about to take shape. Don’t get caught in the middle of this. You can make the changes you need to make in order to switch your position on the trade and be on the correct side of the trend.