Up until now we have been talking about the stuff that can seem a little too difficult for some.
You know, the stuff that requires formulas in order to be sorted and counted and the stuff that requires math… although trading does require math in the first place. But come on, no one wants to do more math than we need for basic tasks, right? Maybe mathematicians do, but that is basically their job.
That is why right now the time has come to look at one of the simplest possible indicators. The second of the three, right? Well, here we go – introducing the parabolic SAR (Stop and reverse).
It is indeed extremely simple to use and see.
Imagine a candle chart. Imagine that we see the price moving down. And now, put the dots right above the down movement, you can pretty much do the same thing with the up-movement of the chart. Just put dots right below – if the chart is going up, or above – if the chart is going down. And voila – there you have it. A parabolic SAR.
Using the SARs is an extremely simple task as well. If the dots are below the chart that means that the price is going up – as I said above – that means that the signals the chart is giving off is BUY. Similarly, if the dots are above the chart – the signal is SELL. All due to the movements of the candles.
As I already said. That is easy, the simplest tool that I can possibly think of at the moment. And I am not kidding.
But, of course, just like with any other indicators and trading tools there is a downside to it.
It can’t be used in the jumpy market, as SARs are mostly used for determining the trends. If used in the markets without long down- and up-trends this chart can ring any trader to a loss, as it is going to identify the trend that is not really there.
So, better used in the markets with really long trends, you hear?
It is indeed extremely simple to use and see.
With other charts telling us when to go into the trend, this one can also tell us when to exit one.
Pretty much the first three dots of the new trend signal about the end of the short-trading for you. We all know that shorting is one of the most convenient ways to trade and SARs exist just to work with shorting. A perfect match!
