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27. How to Trade the Parabolic SAR – Stocks, Futures, Forex

www.informedtrades.com A lesson on how to trade the Parabolic Stop and Reversal (SAR) indicator for traders of the forex, futures, and stock markets. In our last lesson we learned about the Average Directional Index (ADX) an indicator which helps traders determine the strength of trends in the market. In today’s lesson we are going to look at another indicator called the Parabolic Stop and Reversal (Parabolic SAR), which helps traders enter and manage positions when trading those trends. The Parabolic SAR is an indicator that, like Bollinger bands is plotted on price, the general idea of which is to buy into up trends when the indicator is below price, and sell into downtrends when the indicator is above price. Once traders are in positions the indicator also assists in managing the position by providing guidance as to how one should trail their stop. Example of the Parabolic SAR While this is an indicator that works very well in trending markets, as you can see from the below chart simply following the basic be long when the indicator is below price and be short when the indicator is above price will lead to many whipsaws in range bound markets. Example of Whipsaws in Range Bound Markets To combat this problem the developer of the indicator J. Welles Wilder (who also developed the RSI and ADX) recommended establishing the strength and direction of the trend first through the use of things such as the ADX, and then using the Parabolic SAR to trade that trend. As mentioned

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23 Comments for 27. How to Trade the Parabolic SAR – Stocks, Futures, Forex

  1. EarnForexMoney said,

    April 14, 2010 @ 8:09 am

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    April 14, 2010 @ 8:09 am

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  3. abcsofgas said,

    April 14, 2010 @ 8:09 am

    $RIFIN (faz = rifin x3)
    The $RIFIN is looking very bullish.. FAZ tracks 3x the $RIFIN intraday.
    Long-Term Target is 880 if the russells financials don’t break 800 in march/april 2010..
    Watch out Fazzers.. You might want to look at some puts ..

    SEE WEEKLY CHARTS LIKE THIS AT

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  4. panda532 said,

    April 14, 2010 @ 8:09 am

    it means you change your stop to a higher price when your stock is in an uptrend

  5. umayanarosy said,

    April 14, 2010 @ 8:09 am

    Nice try. Keep it up check out esteembpo + com for social media marketing. m,m

  6. Bolawale said,

    April 14, 2010 @ 8:09 am

    Thanks for this video. I noticed on several charts that whenever the parabolic point is breached on the direction of the major trend, it seems to provide an opportunity of at least 6points.
    What do you think?

  7. OptikNerv1138 said,

    April 14, 2010 @ 8:09 am

    Some people like to use the SAR as a point to place a trailing stop, rather than a trade entry/exit signal. A trailing stop is used to lock in profits as the trade moves along. If you are long, you keep raising your SELL STOP order as the security rises. Eventually when the trend breaks, the price will fall back enough to trigger the sell order. This is how I use the SAR. Don’t bother buying indicators, such as the “trading with an edge” advertisement below. waste of money.

    optik

  8. wa7sh999 said,

    April 14, 2010 @ 8:09 am

    I don’t understand the part of trailing stops plz someone reply

  9. TradingWithAnEDGE said,

    April 14, 2010 @ 8:09 am

    SAR is like most indicators. Useless.

    See my custom software on my video

    Trading with an EDGE

  10. nizmo034 said,

    April 14, 2010 @ 8:09 am

    Hi David, love your work. I wanted to make a request. Is there any chance you can put up a video on VWAP? Cheers.

  11. Yellowknight888 said,

    April 14, 2010 @ 8:09 am

    How is this parabolic SAR relevant on a real stock trading environment? You can place a trailing stop by specifying to your broker, but you can specify to stop based on parabolic SAR, can you?

  12. Clemmitt27 said,

    April 14, 2010 @ 8:09 am

    i cant watch this video

    i cant watch this video vy

  13. elwalvador said,

    April 14, 2010 @ 8:09 am

    Kenpoka, shut your mouth. Don’t be a whinny little bitch. Dave is providing us with valuable information and doing a damn good job of it too.

    Keep up the good work Dave!

  14. mikeoneill2376 said,

    April 14, 2010 @ 8:09 am

    From all the questions Ive read here, you guys could do with taking a look at this ebook to take your trading to the next level…dont worry…its free.. thestockmarketcode (dot) com

  15. schrutzen said,

    April 14, 2010 @ 8:09 am

    hey folks these sites should help you too if youre reading more or a begginer in stocks..

    econtrader. com
    about. stocks. com
    investopedia. com
    howtotradestocks. org

    i dont think you really need investools since most books and online resouces
    should be enough for you to learn if you are just resourceful!!
    focus on economics too it should help a lot!

  16. jtking2504 said,

    April 14, 2010 @ 8:09 am

    Agreed, Dave is doing an amazing job here, we are very privilleged to have this info., can’t believe how some people can find fault ANYWHERE!

  17. InformedTrades said,

    April 14, 2010 @ 8:09 am

    Hi Frrobs, I haven’t done any lessons on pivot points yet but there are some over on InformedTrades in the free course section. Best Regards, Dave

  18. Frrobs said,

    April 14, 2010 @ 8:09 am

    Hi David, I am missing the pivot points. Is there a reason for this? I found some lessons on your homepage and followed the strategy last week in the DAX. As a resistance and support strategy very effective.
    Thanx for your effort. frrobs

  19. jstruble92 said,

    April 14, 2010 @ 8:09 am

    Hey Dave… Ummm uhhhh… Dont listen to people like that. i am here for for great information, NOT for production. Kenpoka… If you want great production, go to the theater and pay for it.

  20. InformedTrades said,

    April 14, 2010 @ 8:09 am

    Hi Kenpoka65, Thanks for the feedback I will try to do a better job in the future. Best Regards, Dave

  21. kenpoka65 said,

    April 14, 2010 @ 8:09 am

    great lesson.
    production wise though, you say ‘uhm’ alot and also there are several distracting breath sounds through the mic.

  22. InformedTrades said,

    April 14, 2010 @ 8:09 am

    Hi thestevewright, Thanks for the comment I am glad you like them and hope you will come join us at InformedTrades for more great free trading videos and discussions on trading. Best Regards, Dave

  23. thestevewright said,

    April 14, 2010 @ 8:09 am

    Terrific videos here Dave – thanks for your efforts, much appreciated.

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