Sunday, March 29, 2009

Parabolic SAR Technical Indicator

Parabolic SAR (Stop And Reversal) was the developed by was developed by the famous technician Welles Wilder, creator of the relative strength index, and it is shown as a series of dots placed either above or below an asset's price on a chart. (Casey Murphy).

The application of Parabolic SAR is very simple. It shows the probability of market direction using a series of dots, for example when the dots moving below the chart, indicating that the market is moving upwards. Or the opposite when the dots moving above the chart, it indicates downward direction.

Notice that at the early break-out stages you can see the dots are much closer to each other until the break out happens, then it starting to break away from one another until it fades away. It is important to observe this patterns as it repeat itself on every breakouts.

This simple application has making it one of the popular technical indicators used by the novice and professional traders alike. Beside it is most of the most used in short-term forex trading. It can increase the effectiveness of market direction signal if combined with other indicators like RSI, MACD, Stochastic, and Bollinger Band.

Parabolic SAR on daily time frame GBP-USD pair bearish trend.

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