Parabolic SAR

Parabolic S-A-R is a trending indicator that can help you determine when to exit a trade. S-A-R stands for “stop and reverse,” and when you see the price hit the parabolic S-A-R indicator on the chart, you may want to consider exiting your trade. You can look at is as a type of technical stop loss for your trades.

Again, as with Bollinger bands, you will most likely want to leave the default settings alone when plotting this indicator.

Here’s how it works. The parabolic S-A-R, after if reverses from either above or below the price on the chart will slowly start to tighten up and move in closer and closer to the price until the price ultimately hits the indicator. This causes the indicator to flip over to the other side of the price and begin the process all over again.

If you use the parabolic S-A-R as a stop loss indicator, you know you will never hold onto a trade that goes against you because it will tell you when to exit. However, it does have its limitations. It may take you out of trades that are only experiencing a momentary pull back before they continue on to higher and higher profits, as it did in November on the Apple Computers (AAPL) chart.

Now that you're finished reading the text version of this tutorial, watch the video.

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