How to use the Parabolic SAR in Forex Analysis

What is a Parabolic SAR and how can it be used in Forex?

In the last previous lesson, we learned that the MACD indicator is used to identify new trends.

The Parabolic SAR is used to identify the point where the trend ends, helping a Forex trader to close an open position. The SAR acronym stands for Stop And Reversal.

A Parabolic SAR leaves dots on the chart that indicate possible price reversals as shown below.

Using Parabolic SAR in Forex trading

From the image, it is clear that the dots are below the candlesticks when the price movements are trending upwards, and they move above the candlesticks when the trend reverses to a downward movement.

How to use Parabolic SAR to trade Forex

  • Buy the currency pair when the dots are below the candles.
  • Sell the order when Parabolic SAR dots are above the candlesticks.
  • The parabolic SAR is most effective when prices are trending up or down.
  • Do not use this tool when prices are moving sideways with no clear trend

how to use parabolic SAR in Forex trading

As shown in the figure above, you SELL when you see THREE dots occurring above the candlesticks.

BUY when you see the THREE dots forming below the candlesticks.

Parabolic SAR is used to exit trade when the prices are reversing.

In this case, you exit the buy order when new dots start forming above the candlesticks and exit the sell order when new Parabolic SAR dots occur below the candlesticks.

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