Trading Forex Pullbacks
Trading Forex With Parabolic SAR Indicator
The Parabolic SAR (Stop-And-Reverse) is a well-known technical indicator that can be founded in almost any trading platform nowadays. In this article we will describe various methods of using it for maximum profits.
The Parabolic SAR is a unique trading indicator. Its uniqueness lies in the fact that it is one of the few indicators that directly take into account the time factor. Most indicators focus their calculations on price and ignore time and volume, the Parabolic SAR takes time into the equation, attempting to reach more concrete signals. Another advantage of the Parabolic SAR is that it is highly objective, with very slim margin for personal interpretation. Its signals are clear and easy to understand.
The main methods of incorporating the Parabolic SAR into your trading are the following:
Method #1: Simple Buy and Sell mechanism
The Parabolic can signal long and short trades. When its value is below price a long trade is signaled, and when its value is above – a short trade is issued. This is a standard trend-following system, yet it is also lagging and usually produce weak signals. Trader may try to adjust the settings to better fit the currency he or she trades, to improve the performance.
As it is a trend-following method, it fails miserable at range-bound markets, and therefore it should be confirmed with a range filter (like Linear Regression Slope) to ensure that trend is strong. One may also try to confirm it with breakouts of ranges and pullbacks, to increase the win rate and maximize the performance.
Method #2: Trailing Stop Loss
This is the powerful method of using the Parabolic – as trailing stop loss. The entries that this indicator produces are generally weak, but the exits are very good and allow you to ride trends for a long time before reversing. This is why this indicator is very useful as a trailing stop mechanism. The value of the Parabolic is used as a trailing stop for a open trade, to protect profits. It also accounts for the volatility of the currency, making it suitable for a vast range of currencies with different volatility and trading volume.
Many commercial trading systems incorporate the Parabolic in their trade exits as it is very reliable and self-adjusts to changing markets. It is a more profitable method than the simple buy sell method, in which the Parabolic performs poorly.
About the Author
Looking for the BEST indicator? – Check out the FXUltraTrend! This SUPERB indicator made 127,912$ since the beginning of 2009, simple and easy to use. This is the indicator you can’t afford to miss!
FOREX VIDEO – London Session Review – March 19, 2010
|
|
Trading Price Action Trading Ranges: Technical Analysis of Price Charts Bar by Bar for the Serious Trader (Wiley Trading) $42.98 Praise for Trading Price Action Trading Ranges”Al Brooks has written a book every day trader should read. On all levels, he has kept trading simple, straightforward, and approachable. By teaching traders that there are no rules, just guidelines, he has allowed basic common sense to once again rule how real traders should approach the market. This is a must-read for any trader that wants to learn h… |
Filed under: Trading Forex
Like this post? Subscribe to my RSS feed and get loads more!