Parabolic SAR

SAR stands for Stop and Reverse. The indicator was developed by Welles Wilder, creator of RSI and ADX. Parabolic SAR is more popular for setting exit targets than for establishing direction or trend. While others recommend to establish the trend first, and then trading with Parabolic SAR in the direction of the trend. If the trend is up, buy when the indicator moves below the price. If the trend is down, sell when the indicator moves above the price.

I used ADX to determine when is the right time to enter the market and Parabolic SAR to determine when is the right time to exit.




Take a look at the picture above. That is Usd/Chf pair in strong bearish trend. When we enter the market with strong bearish indication like the picture above, we might want to exit the market for a while and then to go short again at a better level. We can use Parabolic SAR to help us finding our exit door.

If the dots are above the price on your chart then it is still moving downward. But when the dots are below the price on your chart then it’s time to go up, and this is the time for us to exit from our short position.

And if the trend is bullish, then we are going to exit the market when the dots are above the price.

Simple isn’t it?

[written by richie]