Parabolic is a technical analysis indicator that belongs to the trend class. Parabolic was developed by Wells Wilder, a famous trader who has developed many interesting and, most importantly, profitable indicators.How to use the Parabolic indicator
In financial markets, traders make money when they enter and exit deals correctly, that is, they buy cheap and sell dear. The essence of this dogma is clear to everyone, and in advance. Unfortunately, if this simple rule could always be strictly followed, then all participants in financial activities would be multimillionaires. As we know, this is not entirely true, or rather not at all. At all times, traders have been looking for and will be looking for that one and only way to find these most important points on the charts for active action. Wells Wilder is no exception, he was also constantly looking for new solutions for profitable trading. And so, Parabolic is a trend indicator designed to search for so-called pivot points. The indicator plots arrays of points on the charts of trading instruments.
With a predominant uptrend, the dots are located below the candles to form a support line. If the market is in a downtrend, dots will be drawn above the candles. We also recommend reading ROC Indicator Description.Features of the Parabolic SAR indicator
- If there are large gaps between the indicator points, this means that the current movement has a great potential for continuation. In this case, strong corrections are possible. In this regard, it is strictly not recommended to open positions at such moments of the market, since you can easily catch a stop on an open trade if a correction begins, that is, a rollback.
- If the distance between the points is small, this means that most likely at the moment the volatility is low, despite the fact that there is still movement. Such segments of the market may indicate that a reversal is possible soon.
- If you are trading with the trend, then the Parabolic SAR points can be used as guidelines for setting protective orders to close positions, that is, Stop Loss. At the same time, pay attention, if you are interested in “completely catching the trend”, that is, you want to take the maximum from the movement of a trading instrument, points can be used to move protective orders. That is, when a new point appears, we move the Stop Loss to its level. In this case, when the stop is triggered, you will get the maximum profit from the past price movement. The main thing here is not to overdo it, remember that if the point is close to the current price, and the distance to the previous point is insignificant, a rollback or reversal is possible. If a reversal is good, you will close on time, but if a reversal is a bad thing, since after it the movement will continue in the same direction. In summary, if you move your stop point by point, always consider the possibility of pullbacks.
- As with all trend indicators, the Parabolic Sar works the better the higher timeframe you use to trade. it is worth trading on it for periods of one hour or more.
- If you are going to use it on smaller timeframes, always look for confirmation of signals to enter and exit the market. That is, in this case, Parabolic CAP should not and cannot be the only indicator in your trading system.