What is the Parabolic SAR Indicator?
The Parabolic SAR indicator is a price and time-based indicator. The SAR stands for Stop And Reverse. This indicator tracks price as the trend develops over time. On the IQ Option platform, it appears as a series of consecutive dots moving above or below the price.
The stop and reverse in the indicator's name simply suggest that the indicator will stop and reverse when the trend does so. In this guide, I'll show you how to set up this indicator as well as how to use it to trade.
Setting up the Parabolic SAR indicator on IQ Option
Start by logging in to your account. Select your preferred trading instruments and use the Japanese candlestick chart.
Next, click on the indicators feature. Select “popular” and then Parabolic SAR.
Trading using Parabolic SAR on the IQ Option platform
How do you read a parabolic SAR indicator?
If the indicator is moving below the prices, the trend is rising and you should enter a buy position. If it breaks and crosses above the prices, the trend is falling and you should enter a sell position.
Your objective should be trading using the Parabolic SAR during trend reversals. This way, you'll enter the market early before the trend becomes exhausted and eventually reverses.
Now, when the trend is up and the indicator is moving below it, wait until the indicator crosses the price and breaks. It will then start moving above the prices. When the trend is down and the indicator is moving above the prices, wait until the indicator crosses and breaks the price. It's time to enter a sell position.
Observe the first SAR dot that appears when the indicator crosses and breaks the price chart
If the trend was down and the SAR breaks below the price, look at the first candle that starts developing. If it's a bullish (green) candle, it's an indicator that the trend is about to reverse. It's time to enter a buy position.
Similarly, if the trend is up and the SAR breaks above price, there's an impending trend reversal. Look at the first candle that appears after the break. If it's a bearish (orange) candle, you should enter a sell position to take advantage of the developing downtrend. You can build all these trading signals into your Parabolic SAR Indicator strategy.
Which indicator is best with Parabolic SAR?
As with other technical analysis indicators, PSAR can be combined with other indicators. You will get the best results by combining it with moving averages, which will determine the higher-order trend. For this purpose, you can use the SMA50, SMA100 or even the SMA200. It is also quite interesting to combine the Parabolic SAR with the MACD and other combos including the PSAR and the Stochastic Oscillator. The possibilities are many. It is always worth checking on live charts how the combination you want to use performs on a given asset and time frame.
Is Parabolic SAR a good indicator?
The Parabolic SAR indicator is one of the most reliable indicators. However, it's most reliable when trading longer time frames. Avoid using it for 1-minute trades because a small price fluctuation might turn the trend against you. If you look at the chart above, many of the trends run for longer time frames. However, price fluctuations within these time frames are also visible. If you traded long, the trend is sustained and will most likely end a winner. If you opted for short trades, the likelihood of losing most of them is high.
The best way to learn how to trade using Parabolic SAR is by practising. Try out this indicator on the IQ Option practice account. We'd love to hear your views regarding this indicator in the comments section below.
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