Thanks for Checking out The Parabolic SAR Trading Strategy Report that we have developed for you to learn and apply to your trading system.. This Trading Strategy will teach you how to catch new trends on the reversal. The Parabolic Sar trading tool is a dynamic trading tool that is used by many professional traders of every market (Forex, Stocks, Options, Futures). It is best used when the market is trending. If the market is choppy, the market is moving sideways, this tool does not particularly work at its best. This was developed by Welles Wilder when he introduced this into in his book in 1978 that was titled, “New Concepts in Technical Trading Systems.” What this tool basically does is helps traders determine when the current trend will end, or is about to end. The way it shows you this, is by the Dots that show up above or below the price candle. They appear above or below the current candle for a specific reason. If the dot is above the candle it will be a SELL signal or down trend. However, if the dot is a below the candle this can be a signal to BUY or an uptrend. When change occurs (the dot goes from below to above the next candle) this indicates a potential reversal may be starting.
Some may think why not just trade the dots. When it reverses, just make an entry at that price. Technically you can trade like this, and may win some, but this is very risky way to trade this. You need other tools to validate this potential trend reversal.
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Parabolic SAR+Moving Average Strategy
As you can see above, if you simply just trade the dots this will frequently happen. Which is why we use this indicator and two moving averages to determine an entry point. The moving averages will help verify that a reversal is in fact occurring. The combination of these indicators will give you accurate trend reversal set ups. This strategy can be used on any time frame on your chart. So day traders, swing traders and scalpers are all welcome to use this type of strategy. Here are the indicators you need to apply on your chart to use this trading strategy: 1. Parabolic Sar: Standard Settings 2. 40 Length Moving Average= Green color in ou r example 3. 20 Length Moving Average= Red color in our example
Rules for Short trades using this strategy Rule #1- Apply indicators to chart
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Parabolic SAR+Moving Average Strategy
You can choose different colors for the moving averages. The 20 period moving average is Red and the 40 period moving average is Green in this example. Rule #2- Parabolic Sar Dot must change to be above price candle
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Parabolic SAR+Moving Average Strategy
Notice how the Parabolic Sar dots were below the price. The price stalled out for a few hours and then the Parabolic sar dot appeared above the candle. This is a sign that a reversal may be happening. Rule #3- Another element that must occur is the moving averages must cross over.
In a short trade the 20 period moving average will cross and go below the 40 period moving average.
So now the 20 period moving average is below the 40 period moving average. However, something occurred that is notable. The parabolic sar dot then appeared below the price candle. Since the moving averages are telling us that a down trend is most likely going to occur, we will wait until the the parabolic sar dot appears again above price candle to validate this reversal. Rule #4- Parabolic Sar dot must be above price candle AND moving averages cross to where 20 period MA is below 40 period MA.
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Parabolic SAR+Moving Average Strategy
Note** One of these elements may occur before the other. The reversal dot can appear before the MA lines cross. Or the Moving averages can cross before the reversal candle. As long as we have both elements the entry criteria is met. Rule #5- Enter Next Price Candle
Enter the very next price candle after the parabolic sar dot appears above candle. As you can see on our chart where we entered the trade. Waiting one candle after makes sense because this
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Parabolic SAR+Moving Average Strategy
proves to us that this reversal is strong. The moving averages are supporting the downtrend + the parabolic sar dot is signifying a down trend. Rule #6- Stop loss / Take Profit
The stop loss you will place 30-50 pips away from your entry. Always look for prior resistance or support to determine a stop loss. In our example a stop loss was placed 40 pips from entry.
Your exit criteria is when the 20 and 40 period lines cross over again. OR when the parabolic sar dot reverses appears at the bottom of the candle This trade would have been a +203 pip profit using the MA cross exit approach. Not too bad. Some will get out of the trade when the parabolic sar dot appears below the price candle. If that was the case, in this example, you would have got +32 pips instead. Still not bad, but +203 pips sounds a lot better. You can use either exit strategy. This trade the downtrend was very strong so we stayed in until the MA lines cross. Determine where you are at in a trade. If you are up +100 pips and the dot changes to reversal consider getting out then and taking your profit.
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Parabolic SAR+Moving Average Strategy
Rules for Long Entry using this Strategy Rule #1- Apply indicators to chart Rule #2- Parabolic Sar Dot must change to be below price candle. This is a sign that a reversal may be happening. Rule #3- Another element that must occur is the moving averages must cross over. In a long trade, the 40 period moving average will cross and go below the 20 period moving average. Rule #4- Parabolic Sar dot must be below price candle AND moving averages cross to where 20 period MA is above 40 period MA. Note** One of these elements may occur before the other. The reversal dot can appear before the MA lines cross. Or the Moving averages can cross before the reversal candle. As long as we have both elements the entry criteria is met. Rule #5- Enter Next Price Candle. Enter the very next price candle after the parabolic sar dot appears below candle + MA lines cross and 20 period MA is above 40 period. Rule #6- Stop loss / Take Profit The stop loss you will place 30-50 pips away from your entry. Always look for prior resistance or support to determine a stop loss. Your exit criteria is when the 20 and 40 period lines cross over again.
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Parabolic SAR+Moving Average Strategy
This would have been a nice +74 pip profit trade using this strategy.
Conclusion As stated, this strategy can be used on any time frame. However, you should always check different time frames and look at what the market is currently doing. No strategy can give you a 100% win ratio so always be placing your stops at the appropriate areas. I would recommend practicing making both short and long trades with this strategy.
Below you will find a few more examples that uses the Parabolic SAR+moving average trading strategy.
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Parabolic SAR+Moving Average Strategy
Example #1: EURUSD 4 hour time chart- Short Entry (+331 Pip Trade) Rule #1- Apply indicators to chart ↓
Rule #2- Parabolic Sar Dot must change to be above price candle Another element that must occur is the moving averages must cross over. ↓
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Parabolic SAR+Moving Average Strategy
Rule #3- Parabolic Sar dot must be above price candle AND moving averages cross to where 20 period MA is below 40 period MA. ↓
Rule #4- Enter Next Price Candle. Enter the very next price candle after the parabolic sar dot appears above candle + MA lines cross and 20 period MA is below 40 period. ↓
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Parabolic SAR+Moving Average Strategy
Rule #5- Stop loss / Take Profit ↓
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Parabolic SAR+Moving Average Strategy
Example #2: USDCAD 1 hour time frame (Long entry) +112 pips Rule #1- Apply indicators to chart ↓
Rule #2- Parabolic Sar Dot must change to be below price candle. This is a sign that a reversal may be happening. ↓
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Parabolic SAR+Moving Average Strategy
Rule #3- Another element that must occur is the moving averages must cross over. In a long trade, the 40 period moving average will cross and go below the 20 period moving average.↓
Rule #4- Parabolic Sar dot must be below price candle AND moving averages cross to where 20 period MA is above 40 period MA. Note** One of these elements may occur before the other. The reversal dot can appear before the MA lines cross. Or the Moving averages can cross before the reversal candle. As long as we have both elements the entry criteria is met.↓↓
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Parabolic SAR+Moving Average Strategy
Rule #5- Enter Next Price Candle. Enter the very next price candle after the parabolic sar dot appears below candle + MA lines cross and 20 period MA is above 40 period. ↓
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Parabolic SAR+Moving Average Strategy
Rule #6- Stop loss / Take Profit ↓
Exited the trade when the MA lines cross again. This was a +112 pip Winner Thanks for reading! If you are interested in more trading strategies like this go ahead and visit our blog page at http://www.tradingstrategyguides.com/blog/ If you have any questions for our team, email us at
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Parabolic SAR+Moving Average Strategy
