Forex Swing Trading Strategy #8:(Parabolic SAR Indicator Trading Strategy)

Posted by Mangi Madang on August 31st, 2012

The Parabolic SAR Indicator Trading Strategy is based on the Parabolic SAR Indicator.

This is how the parabolic sar works:

• when the market is in a downtrend, the parabolic sar will form above the candlesticks. This should give you the heads up that the uptrend may have ended and the market may be now going down.
• when the market is in an uptrend, the parabolic sar indicator will form below the candlesticks. Then you know that the downtrend may have ended and now the market is probably going to go up.
• The Parabolic SAR Indicator Is also good at making it clear to you the market swings.

The Parabolic SAR Indicator Trading Strategy   is one of the simplest forex trading strategies  using the parabolic sar indicator just as it is: without any other forex indicators.

What timeframes are suitable to trade the parabolic sar indicator trading strategy ?

Use the 4hr & the daily timeframes to trade this strategy. You may also use the 1hr timeframe-but this may lead to too many false signals.

If you are trading in the smaller timeframes like the 1hr and below, it is important that you be aware of existing larger trends that may override the little trends that you may be trading on.

HOW TO TRADE THE PARABOLIC SAR

For Buy Setup:

1. Wait until the parabolic sar dot forms below the candlesticks.
2. Place your buy stop order above the high of the candlestick that the parabolic sar indicator formed under.
3. Place your stop loss 5-10 pips below the low of that candlestick.
4. Exit your trade when the parabolic sar indicator gives a sell signal (when a dot forms above a candlestick)

For Sell Setup:

1.  Wait until parabolic sar dot forms above the candlestick.
2. Place your sell stop order 3-5 pips below the low of that candlestick.
3. Place your stop loss 5-10 pips above the high of that candlestick.
4. Exit your trade when the parabolic sar indicator gives a buy signal (when a dot forms below a candlestick)

DISADVANTAGES OF THE PARABOLIC SAR INDICATOR

• Responds late to price moves so your trade entries are made after a move (either upward or down) has happened.
• Because the Parabolic SAR indicator Responds late, your stop loss placements are not in the ideal locations (like behind support and resistance levels)
• A flat or non trending market in consolidation will cause you grief because there will be too many false signals.

THE POSITIVES OF THE PARABOLIC SAR

• If you are new forex trader, this is a simple swing forex trading strategy which you can use to practice to trade the forex market.
• in a good trending market, the parabolic sar indicator forex trading strategy will work very well.
• the forex trading strategy described in this page is very crude or basic in its form. If you can combine with other forex indicators like moving averages to eliminate those false signals that happen when the market is flat or not trending.
• it is a good swing trading indicator showing you price swings (always bit late though)

So there you have it. Now you know how to use the Parabolic SAR Indicator And Trade Forex using Trading Rules given above.