The Parabolic Sar technical indicator is a simple indicator but used by a lot of traders during trading. This is a great supporter in predicting short-term fluctuations in prices. The uses, as well as the strategies of Parabolic Sar, will be available in today’s article.
- 1 What is Parabolic Sar indicator?
- 2 How Does Parabolic SAR Indicator Work?
- 3 How to set Parabolic SAR Indicator in Binomo trading platform?
- 4 Trading Strategies Using Parabolic Indicator
- 5 The bottom line
What is Parabolic Sar indicator?
Parabolic Sar is a technical indicator used to determine price direction, as well as give a warning when price direction is changing. It is also known as “stop and reversal system”. A difference compared to other indicators is that Parabolic gives you short-term changes signals in price. This is also an advantage of this indicator. Therefore, it is favored by many traders.
How Does Parabolic SAR Indicator Work?
On a price chart, Parabolic Sar is displayed as a series of colored dots running along with the price bar. Depending on the trend of the price, these dots may be placed either above or below the price bar.
• When the price is in an uptrend, the Parabolic dots appear below the price bar.
• When the price is in a downtrend, the Parabolic dots appear above the price bar.
• When the price reverses, the Parabolic dots also flip. This is an important signal of this indicator.
In (1) and (3) Parabolic dots are below the candles => the market is in an uptrend => It signals a further rise in price (UP).
In (2) and (3) Parabolic dots are above the candles => the market is in a downtrend => it signals a further down in price (UP).
How to set Parabolic SAR Indicator in Binomo trading platform?
In Binomo, you need to follow the steps below to set the Parabolic indicator.
(1) Indicators menu.
(2) Parabolic SAR.
An indicator settings window appears. You will need to set the parameters as follows:
(3) Maximum Acceleration Factor
(4) Minimum Acceleration Factor
Finally, choose the color of the indicator. Then click Apply.
Trading Strategies Using Parabolic Indicator
Here, we will show a few strategies using this indicator. Besides, after getting used to it, you can build your own tactics.
Strategy 1: Using the Parabolic indicator only
In this strategy, what you need to do is to focus on observing the position of Parabolic Sar indicator dots compared to the price bar, i.e:
When Parabolic Sar dots move from below the price bar to above the price bar => Buy a DOWN order.
Conversely, when Parabolic Sar dots moves from above the price bar to below the price bar => Buy an UP order.
Strategy 2: Combining Parabolic with Simple Moving Average (SMA)
This is an indicator of price trends in the long-term. SMA when combining with Parabolic Sar (short-term indicator) will make your transactions extremely safe.
UP order = The bullish reversal candlestick pattern (Morning Star, Hammer, etc.) + Parabolic dots below the candles + The price bar intersecting with SMA30 from bottom to top.
Explanation: The reversal signal is the Morning Star candlestick pattern + Parabolic dots below the candles => Price is in an uptrend. Click on the order right behind the candle which intersecting with SMA30.
DOWN order = The reversal candlestick pattern in a downtrend (Evening Star, Shooting Star, etc.) + Parabolic dots below the candles + The price bar intersecting with SMA30 from bottom to top.
Strategy 3: Combining with continuation candlestick patterns
In this strategy, Parabolic SAR indicator is considered as a long trend signal. And candlestick pattern will be a signal for continuation trend.
Formula for opening orders:
UP order: Parabolic dots below the price bar + bullish continuation candlestick pattern (Pin Bar, Tweezer bottom, Bullish Engulfing, etc..).
DOWN order: Parabolic dots below the price bar + bearish continuation candlestick pattern (Evening Star, Bearish Engulfing, etc..).
Requirements for these strategies: 5-minute Japanese candlestick chart. Expiration time varies flexibly from 5 to 15 minutes.
Through the above strategies, you have seen somewhat the effectiveness of Parabolic within trading. Get familiar with it today via Binomo demo account. See you again in the following articles.