Parabolic Sar, invented by J. Wellens Wilder is a trend following indicator. The PSAR dots will appear below the price in uptrends while the dots appear above the price in downtrends.
PSAR (stop and reverse) is mainly used to trail stops up or down in trending markets. PSAR can also be used to identify market reversal points. Caution advised: many whipsaw entry signals will occur in range bound markets.
EUR/USD Parabolic Sar (PSAR) Weekly Chart
Type of technical indicator: Trend following
Forex signals from PSAR
1. In trending markets
In uptrends, place and continue trailing your stop UP according to the SAR dots.
In downtrends, place and continue trailing your stop DOWN according to the SAR dots.
2. In range bound markets
Using Parabolic Sar in sideways markets will create too many false entry signals.
Powerful trading combinations with Parabolic Sar
Always use PSAR in conjunction with other trend following indicators.
Exit Strategy using Parabolic Sar (PSAR)
The Parabolic Sar indicator is a great tool in guiding you where to exit both long and short trading positions in trending forex markets. It is also a great way to remove emotions from trading and the guesswork involved.
How to interpret Parabolic Sar?
- When the currency pair is trading below the blue dots (see picture below), it simple means the price is going down.
- When the currency pair is trading above the blue dots, it simply means the currency price is going up.
Caution: Do not use Parabolic Sar (PSAR) in choppy markets, it generates too many false signals.
Forex Chart Setup
Preferred Time Frame’s: 30 min and above
Currency Pairs: Any
How the Parabolic Sar exit forex strategy works
1) In up trending currency markets, place and continue trailing your stop loss UP according to the PSAR dots.
2) In down trending currency markets, place and continue trailing your stop loss DOWN according to the PSAR dots.
The 4 hour euro/dollar chart below shows you how to trail a stop loss in an up trending market using Parabolic Sar. It’s easy and quite effective in strong trends.