Preschool>= Lesson Status ?
Kindergarten>= Lesson Status ?
Elementary>= Lesson Status ?
Grade 1 Support and Resistance Levels
Grade 2 Japanese Candlesticks
Grade 3 Fibonacci
Grade 4 Moving Averages
Grade 5 Common Chart Indicators
Middle School>= Lesson Status ?
Grade 7 Important Chart Patterns
Grade 8 Pivot Points
Summer School>= Lesson Status ?
High School>= Lesson Status ?
Grade 9 Trading Divergences
Grade 10 Market Environment
Grade 11 Trading Breakouts and Fakeouts
Grade 12 Fundamental Analysis
Grade 13 Currency Crosses
- What is a Currency Cross Pair?
- Crosses Present More Trading Opportunities
- Cleaner Trends and Ranges
- Taking Advantage of Interest Rate Differential
- Obscure Crosses
- Planning Around News and Fundamentals
- Creating Synthetic Pairs
- Euro and Yen Crosses
- How to Use Crosses to Trade the Majors
- How Cross Currency Pairs Affect Dollar Pairs
- Summary: Currency Crosses
Grade 14 Multiple Time Frame Analysis
Undergraduate>= Lesson Status ?
- Why Keep a Trade Journal?
- Benefits of Keeping a Journal
- What Should You Record in Your Journal?
- Potential Trading Area
- Entry Trigger
- Position Sizing
- Trade Management Rules
- Trade Retrospective
- Trading Journal Statistics
- Reviewing Your Trading Journal
- Difficulties of Keeping a Trade Journal
- Summary: Keeping a Trade Journal
Graduation>= Lesson Status ?
- Which Trading Style is Best for You?
- Which Currencies Should You Trade?
- What is Your Level of Trading Experience?
- Should You Be a Discretionary, Mechanical, or Hybrid Trader?
- What Kind of Mechanical System Suits Your Personality?
- What is Your Attitude Towards Risk?
- What Kind of Stop Suits Your Trading Style?
Up until now, we've looked at indicators that mainly focus on catching the beginning of new trends. Although it is important to be able to identify new trends, it is equally important to be able to identify where a trend ends. After all, what good is a well-timed entry without a well-timed exit?
One indicator that can help us determine where a trend might be ending is the Parabolic SAR (Stop And Reversal). A Parabolic SAR places dots, or points, on a chart that indicate potential reversals in price movement.
From the image above, you can see that the dots shift from being below the candles during the uptrend to above the candles when the trend reverses into a downtrend.
How to Trade Using Parabolic SAR
The nice thing about the Parabolic SAR is that it is really simple to use. We mean REALLY simple.
Basically, when the dots are below the candles, it is a buy signal; and when the dots are above the candles, it is a sell signal.
Yes, we thought so.
This is probably the easiest indicator to interpret because it assumes that the price is either going up or down. With that said, this tool is best used in markets that are trending, and that have long rallies and downturns.
You DON'T want to use this tool in a choppy market where the price movement is sideways.
Using Parabolic SAR to exit trades
You can also use Parabolic SAR to help you determine whether you should close your trade or not.
Check out how the Parabolic SAR worked as an exit signal in EUR/USD's daily chart above.
When EUR/USD started sliding down in late April, it seemed like it would just keep droppin' like it's hot. A trader who was able to short this pair has probably wondered how low it can go.
In early June, three dots formed at the bottom of the price, suggesting that the downtrend was over and that it was time to exit those shorts.
If you stubbornly decided to hold on to that trade thinking that EUR/USD would resume its drop, you would've probably erased all those winnings since the pair eventually climbed back near 1.3500.
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- Bollinger Bands®
- Moving Average Convergence Divergence (MACD)
- Parabolic SAR
- Relative Strength Index
- Average Directional Index
- Ichimoku Kinko Hyo
- Putting It All Together
- What is the Most Profitable Indicator?
- Summary: Common Chart Indicators