Trend Indicator: SAR Parabolics

The Parabolic SAR (Stop and Reverse) indicator helps determine good entry and exit points. It is a very simple indicator of use.The parable means putting points that define the trend.

How to interpret

The Parabolic SAR has three functions.

1. It determines trends. 
When the points are below the price, the trend is bullish. The parabola signals bearish reversal as it crosses the price to the top side and forms 3 drop points above the sails. When the points are above the price, the trend is bearish and the parable signals bullish reversal when crossing the price to the underside and forming 3 ascending points below the sails. 
2. It is one of the best tools for determining exit points. 
Close long positions when the price falls below the indicator. Similarly, close short positions when the price is above the points in the parable. Keep in mind that you should keep open positions only in the direction of movement of the gauge. 
3. It can show the location for a trailing stop. 
Imagine that you have already opened a BUY order and prices keep rising so you can move your Stop Loss up. The Parabolic SAR will go up along with the bull prices and the indicator points will give you a clue where to move your Stop Loss. Note that the Parabolic SAR works well in a trend market with long rallies and declines. In a side market, however, there is a high risk of false signals. 


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