Forex Technical Analysis based on experience and research.

Parabolic SAR. More than dots.

In this article I will explain how I look towards the Parabolic SAR in my trading. If you don't know what the Parabolic SAR  indicator is then it is best that you do a search on the web to find out. There is a lot of information available and if you understand the basics then please continue to read this article.
  • If the stop loss is confirmed in multiple time frames it is a more reliable one. When using the Parabolic SAR it gives a clear signal. The signal is most of the times supported by (almost) all other indicators. I am using it for my Hybrid Grid system.
  • When using a high time frame for the Parabolic SAR the lower time frames have a pattern in the Parabolic SAR where the reversal can be seen. You can see higher highs or lower lows entry/exit points against the main trend. This confirms a trend reversal according to one of the main criteria which is the forming of lower tops or higher bottoms seen from the main trend. The Parabolic SAR more or less filters the relevant tops and bottoms giving a clear view by its pattern.
  • An additional advantage is that the Parabolic SAR indicator can be seen as an aggressive trader trying to buy/sell at bottoms/tops against the main trend. The first trade in the new direction is often a loosing trade because the trend is not reversing. Once these trades become profitable the trend may really reverse. This happens mostly after a few trades of the indicator in the new direction, especially on the lower time frames < 8 hours.
For the Hybrid Grid system we are interested in a weekly/daily profit based on 1/2 ATR (2 X 1/4 ATR). For more information about the ATR please click here to read the article. For the weekly/daily profit we use a lower time frame for doing the timing being resp. the daily/4 hour time frame. To place the weekly/daily chart in the right context we use the time frame above being resp. monthly/weekly.
So the Parabolic SAR of the higher time frames support the Parabolic SAR for the lower time frames and they should point in the right direction.
If the Parabolic SAR on one of the higher time frame reverses then the positions have to be closed if the Parabolic SAR reverses in the timing time frame.
This way the exit signal is confirmed by at least one indicator in multiple time frames. The pattern can be seen in the lower time frames but not necessary in the chosen higher time frame. By checking the lower time frames you get the confirmation.

The roughly explained method here is a part of the strategy that I am currently using for the FxTaTrader_HybridGrid system. This method is not used on its own and although the explanation may seem simple and clear there is always risk involved. I added a disclaimer to my blog for this purpose.

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