Developed by J. Welles Wilder, SAR stands for "stop and reverse" and Parabolic refers to the parabolic-shaped series of dots that are overlayed on the underlying currency price chart.
Parabolic SAR is a very popular technical indicator used in currency trending markets to tell you where to set your trailing stops.
It can help you to remove fear and greed from your trading.
Formula
Popular trading signals from Parabolic SAR
Use Parabolic SAR in trending currency markets only because it will generate many false stop signals in ranging markets.
First determine whether a currency pair is trending or moving sideways before plotting SAR on your charts, you can use a trend following indicator or trendlines to find out.
How to use?
This indicator is primarily used to trail your stops and NOT to take entry signals from it.
Applying SAR is very simple, just trail your stop to the most current SAR dot until you got stopped out form the market.
Exit a long trade when:
Currency price hits the most current SAR dot, note that SAR is always below the up trending curve
Exit a short trade when:
Currency price hits the most current SAR dot, note that SAR is always above the down trending curve
Example for an up trending EUR/USD
Please remember that Parabolic SAR, as with all other technical indicators should not be used by itself but should be combined with other indicators / studies to make a complete forex trading system.
