27. How to Trade the Parabolic SAR - Stocks, Futures, Forex

http://www.informedtrades.com/
A lesson on how to trade the Parabolic Stop and Reversal (SAR) indicator for traders of the forex, futures, and stock markets.

In our last lesson we learned about the Average Directional Index (ADX) an indicator which helps traders determine the strength of trends in the market. In today's lesson we are going to look at another indicator called the Parabolic Stop and Reversal (Parabolic SAR), which helps traders enter and manage positions when trading those trends.

The Parabolic SAR is an indicator that, like Bollinger bands is plotted on price, the general idea of which is to buy into up trends when the indicator is below price, and sell into downtrends when the indicator is above price. Once traders are in positions the indicator also assists in managing the position by providing guidance as to how one should trail their stop.

Example of the Parabolic SAR


While this is an indicator that works very well in trending markets, as you can see from the below chart simply following the basic be long when the indicator is below price and be short when the indicator is above price will lead to many whipsaws in range bound markets.

Example of Whipsaws in Range Bound Markets

To combat this problem the developer of the indicator J. Welles Wilder (who also developed the RSI and ADX) recommended establishing the strength and direction of the trend first through the use of things such as the ADX, and then using the Parabolic SAR to trade that trend. As mentioned above although the Parabolic SAR is used for both entering and managing positions, it is used far more to set stops once in a position.

As with the other indicators we have covered in past lessons it is recommended to use this indicator in conjunction with other methods of analysis for confirmation not only on trade entry but also on trade exit.

Example:




That's our lesson for today. While my lessons are by no means exhaustive on the subject this also concludes my series on technical indicators. If you are interested in learning more about the indicators that we have studies as well as some of the other indicators that traders use, I encourage you to visit the technical indicators section of informedtrades.com. In our next lesson we will finish up our series on technical analysis by taking a deeper look at candlestick chart patterns and how one can use these in their trading.

As always I encourage you to participate in the community by posting your comments and questions below, and have a great day!

Category:

Howto & Style

Tags:

• howto
• trade
• ParabolicSAR
• daytrade
• investing
• oney
• finance
• business
• forex
• futures
• stock
• market
• informedtrades

[Frrobs]

Hi David, I am missing the pivot points. Is there a reason for this? I found some lessons on your homepage and followed the strategy last week in the DAX. As a resistance and support strategy very effective.

Thanx for your effort. frrobs

[InformedTrades]

Hi Frrobs, I haven't done any lessons on pivot points yet but there are some over on InformedTrades in the free course section. Best Regards, Dave

[kenpoka65]

great lesson.

production wise though, you say 'uhm' alot and also there are several distracting breath sounds through the mic.

[InformedTrades]

Hi Kenpoka65, Thanks for the feedback I will try to do a better job in the future. Best Regards, Dave

[thestevewright]

Terrific videos here Dave - thanks for your efforts, much appreciated.

[InformedTrades]

Hi thestevewright, Thanks for the comment I am glad you like them and hope you will come join us at InformedTrades for more great free trading videos and discussions on trading. Best Regards, Dave

[elwalvador]

Kenpoka, shut your mouth. Don't be a whinny little bitch. Dave is providing us with valuable information and doing a damn good job of it too.

Keep up the good work Dave!

[jstruble92]

Hey Dave... Ummm uhhhh... Dont listen to people like that. i am here for for great information, NOT for production. Kenpoka... If you want great production, go to the theater and pay for it.

[saweaq1]

GREAT VIDEO

[innamoratissimo]

@kenpoka65 this is crazy...before you speak you can think what are the positives and the negative of this video...hmmmm..I learn something HYPER INTERESTING and I cuss the production errors...the conclusion is I am not thinking...

[innamoratissimo]

@kenpoka65 this is crazy...before you speak you can think what the positives of the negative of this video...hmmmm..I learn something HYPER INTERESTING and I cuss the production errors...the conclusion is I am not thinking...

[FreeFOREXautoROBOTS]

Have a great results with free forex ea

[mrares00]

i love these lessons!! you are great!!