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How to Use the Indicator in Intraday Trading

Trading

7 min read

Parabolic SAR is an indicator of technical analysis developed by J. Welles Wilder. It was first described in 1978 in Wilder's book "New Concepts in Technical Trading Systems". SAR stands for "stop and reverse" and track price movements over time. The indicator is positioned below the price when prices are rising sharply, while it is above it when prices are falling. The author himself called this indicator "Time / Price parabolic system."

At present, Parabolic SAR is considered one of the basic indicators and is included in most trading platforms. The indicator was developed with the aim of informing the trader about possible trend changes. Although it is a unique indicator with high practical potential, Parabolic SAR should still be combined with other indicators for maximum precision.

How does Parabolic SAR work?

The idea behind the indicator is quite simple. When the price crosses one of the Parabolic SAR points it is expected that the indicator will turn around and appear on the opposite side of the price line. This behavior may be the signal of an imminent trend reversal, or at least a slowing down of the trend.

Parabolic SAR is able to predict trend inversions, as illustrated by situations 1, 2, and 3Parabolic SAR is able to predict trend inversions, as illustrated by situations 1, 2, and 3

In the image in other we can see that when Parabolic SAR touches the price, the trend changes its direction. This trend-following indicator can be used to estimate optimal entry / exit points, predict the direction of the trend and the future behavior of the price movement.

Settings for Intraday Trading

To use the Parabolic SAR technical analysis indicator, click on the "Indicators" button in the lower left corner of the screen. Then choose Parabolic SAR from the list of available indicators.

Set the indicator on the IQ Option platformSet the indicator on the IQ Option platform

Click "Apply" if you want to use the indicator with the standard parameters. Alternatively, you can switch to the "Set & Apply" window and configure the indicator according to your preferences.

Use of Parabolic SAR with standard parametersUse of Parabolic SAR with standard parameters

The trader can adjust two technical parameters in the "Set & Apply" window, ie max. Acceleration and acceleration. By increasing the value it is possible to make the indicator more sensitive, at the same time sacrificing its precision.

The opposite effect can be obtained by lowering the acceleration and max acceleration values: the indicator will become less sensitive but will also provide less false signals. Finding the right balance between precision and sensitivity is one of the fundamental tasks of traders wishing to use Parabolic SAR in intraday trading.

Adjust the parameters acceleration and acceleration maxAdjust the parameters acceleration and acceleration max

How to Use the Parabolic SAR Indicator

According to the same J. Welles Wilder the indicator should be used only in the presence of strong trends, which usually do not exceed the 30% of the time. The use of Parabolic SAR over short periods of time and during lateral movements is not advisable, as the indicator loses its predictive potential and may provide false signals.

The indicator loses its predictive power during periods of low volatility, but provides good results when volatility is highThe indicator loses its predictive power during periods of low volatility, but provides good results when volatility is high

Professional traders often use Parabolic SAR in combination with other indicators. One of the possible combinations is Parabolic SAR and Simple Mobile Media; its practical applications are described below. We recommend check the signals of Parabolic SAR with the help of other indicators.

Parabolic SAR + SMA

The combination of these two technical analysis tools is loved by experienced traders. Parabolic SAR (acceleration = 0.04, max acceleration = 0.4) and SMA (period = 55) are used together to mutually confirm the signals. When both indicators are used at the same time, traders await the appearance of the following signals:

Anticipate the uptrend

When the price is below SMA and Parabolic SAR shows an upward movement, it is very likely that the trend will become bullish.

Anticipate the bearish trend

Predict bullish or bearish trends with the combination of Parabolic SAR and SMAPredict bullish or bearish trends with the combination of Parabolic SAR and SMA

When the price is above the SMA and Parabolic SAR shows a downward movement, it is very likely that the trend will become bearish.

Both situations are represented in the photo above. At the beginning of the intervals number 1 and 3 it may be a good idea to invest in Su options, while for intervals number 2 and 4 the opinion is bearish.

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This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that such movements or levels may reoccur in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.

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CFDs are complex instruments and carry the high risk of losing money quickly due to the leverage effect. 76% of retail investor accounts lose money when trading with CFD through this provider. You should make sure you understand how CFDs work and if you can afford to take the high risk of losing your money.


Source: IQOption blog 2018-11-17 13:00:00

PLEASE NOTE: The articles on this website are not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.

In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.

Some of the links on this page may be an affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission.

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This website is not intended for viewers from EEA countries. Binary options are not promoted or sold to retail EEA traders.

General risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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