The Parabolic SAR indicator overview
The Parabolic SAR is one of the indicators you will find in the Olymp Trade interface. The literal meaning of SAR is “stop and reverse”. The indicator follows the price and shows the point where the trend reverses. On the chart, you will see it as dots appearing below or above the candles.
This guide’s purpose is to give you the necessary knowledge on how to configure and how to effectively use the indicator on the Olymp Trade platform.
The Parabolic SAR indicator configuration
Naturally, you have to login into your Olymp Trade account first. After you choose the instrument, select the Japanese candlestick chart.
On top, you will find the indicators’ select button (1). Click it and then choose “Parabolic” (2) from the trend indicators.
You have just added the Parabolic SAR indicator to your chart.
How to trade with the Parabolic SAR indicator
Before we start, you should learn to read the PSAR (Parabolic SAR) indicator.
When the dots are visible under the candlesticks, there is an uptrend. When the dots are above the candlesticks, there is a downtrend.
Trading with the Parabolic SAR indicator is to enter the position when the trend reverses. And this happens when the candle reaches the dots.
So, when there is an uptrend and the dots are below the candles, you should wait until Parabolic SAR crosses the price chart. Now the trend will reverse and it is time to enter a sell position. On the other hand, when there is a downtrend and the dots are above the candles, you should also wait until it crosses the price chart, but this time you should enter a buy position.
Watch the first PSAR dot which comes up after the indicator crosses the price chart.
Pros and Cons of Parabolic SAR Indicator
- ✅ Effective at identifying trend reversals.
- ✅ Can be used as a dynamic stop loss level for CFD trading.
- ✅ Works well with longer timeframes.
- ❌ Less reliable for short-term (1-minute) trading.
- ❌ Can generate false signals during periods of consolidation.
|Parabolic SAR Settings||Description|
|Acceleration Factor||Determines the sensitivity of the indicator to price changes.|
|Maximum Acceleration||Limits the acceleration factor, preventing the SAR from getting too close to the price during a strong trend.|
Extra comments on Parabolic SAR indicator
You can rely on the Parabolic SAR indicator as it is one of the most effective ones. But be aware that it works well at long intervals. Do not use it if you want to trade a 1-minute timeframe. In such a case small price movements will work to your disadvantage and you can easily lose money. As you can see in the charts above, main trends work over a longer period of time. And within them, you can notice bigger and smaller price fluctuations. That is why you should choose longer intervals. It is just more likely that the dominating trend is maintained within a longer period of time.
Now is the time to put the knowledge into practice. Check the Parabolic SAR indicator on a free Olymp Trade demo account. Open one if you don’t have it yet and write in the comments section below how your trading went.
All the best!
Common Questions about Parabolic SAR
- Q: What is the primary use of the Parabolic SAR?
- A: The primary use of the Parabolic SAR is to identify potential points of trend reversals.
- Q: Can Parabolic SAR be used for all time frames?
- A: While it can be used for all time frames, it tends to be more effective with longer time frames.
- Q: Can the Parabolic SAR be used alone?
- A: Like all indicators, it’s generally more effective when used in conjunction with other indicators and tools.
- Q: How can the Parabolic SAR be used as a stop loss?
- A: The Parabolic SAR can be used as a dynamic stop loss level in CFD trading. Traders adjust their stop loss level as the SAR moves.
- Q: Can the Parabolic SAR generate false signals?
- A: Yes, the Parabolic SAR can generate false signals, particularly during periods of market consolidation or sideways movement.
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