Definition of ‘Parabolic Indicator’
A technical analysis strategy that uses a trailing stop and reverse method called “SAR,” or stop-and-reversal, to determine good exit and entry points. Also known as Parabolic Stop and Reverse (PSAR)
One indicator that can help us determine where a trend might be ending is the Parabolic SAR (Stop And Reversal). A Parabolic SAR places dots, or points, on a chart that indicate potential reversals in price movement.
From the image below, you can see that the dots shift from being below the candles during the uptrend to above the candles when the trend reverses into a downtrend.
One indicator that can help us determine where a trend might be ending is the Parabolic SAR (Stop And Reversal). A Parabolic SAR places dots, or points, on a chart that indicate potential reversals in price movement.
From the image above, you can see that the dots shift from being below the candles during the uptrend to above the candles when the trend reverses into a downtrend.
How to Trade Using Parabolic SAR
The nice thing about the Parabolic SAR is that it is really simple to use. We mean REALLY simple.
Basically, when the dots are below the candles, it is a buy signal; and when the dots are above the candles, it is a sell signal.
This is probably the easiest indicator to interpret because it assumes that the price is either going up or down. With that said, this tool is best used in markets that are trending, and that have long rallies and downturns.
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