Table of contents:
The Parabolic SAR strategy is a rather risky trading strategy based on the direct signals of the Parabolic SAR indicator, which shows stop and reversal levels.
Advantages of the Parabolic SAR Strategy
✔ easy to trade
✔ only 1 standard indicator is used
✔ the entry and exit signals are given directly by the indicator
Disadvantages of the Parabolic SAR Strategy
✖ Indicator lag (time delay)
✖ relatively risky and not always effective
Application of the strategy
The Parabolic SAR strategy should work with any currency pair.
- Add the Parabolic SAR indicator to any chart
- Set the step to 0.05 and the maximum to 0.2.
When do I start a trade with the Parabolic SAR strategy?
When the current price touches the indicator from below and the indicator changes direction, this is a buy signal.
If the current price touches the indicator from above and the indicator changes direction, this is a sell signal.
When do I exit a trade with the Parabolic SAR Strategy?
Set the stop loss directly at the level of the indicator level, above the price for short positions and below the price for long positions. Adjust the stop loss with each new candle.
The Take Profit should be set exactly like the Stop Loss and should not be changed.
As you can see on the chart, there are 4 entry signals in the above example. The 1st signal is short and could have been closed in profit. The 2nd signal is long and could have been closed in the stop loss. The 3rd signal is short and would have generated a profit if it had not run into the stop-loss before. The fourth signal is long and could have closed in profit.
As you can see, it is quite possible to make profits with the Parabolic SAR strategy. However, if you take the above example, a long signal is usually followed by a short signal, which is of course not very reliable and not a good alternative, especially in strong trend phases. Therefore the Parabolic SAR strategy is not very reliable.
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