Forex Trading Charts
When analyzing Forex trading charts, you may be inclined to utilize one of the many indicators available. One of the popular Forex indicators that is used by many traders is the parabolic SAR. Here are a few things to consider about the parabolic SAR and why you should use it.
What is a Parabolic SAR?
While it sounds like a deadly airborne disease, it is actually an indicator that you can use on the Metatrader platform. When learning how to read Forex charts, you will most likely see several indicators being used. This is one of the more common indicators and it essentially looks like a series of dots on your chart. The dots tend to move in lines above or below the price line. On the picture of the chart below, you can see the parabolic SAR indicator represented by red dots around the green price bars.
What it Tells You
The parabolic SAR indicator gives you an indication of when the market might reverse. You'll see a line of dots moving along and then when it jumps to the other side of the price line, this tells you that the market is about to reverse.
While the Forex signals that it generates are not foolproof, it does give you a good indication of when the direction of a trend is about to change.
How to Use Parabolic SAR
Using the parabolic SAR indicator is quite simple. To access it, open your Metatrader platform and open your favorite currency pair chart. Then go up to the "Insert" tab in your platform. Then go to "Indicators" followed by "Trend" and finally "Parabolic SAR."
It will then give you a menu that will allow you to choose how you want it to look. You can choose the color and the width of the dots.
Once you put it on the chart, it can be very useful in identifying trends and telling you when to get out of a trade. You can use in conjunction with other indicators such as the
or Bollinger bands to figure out when to get into a trade. Then you can use it to see when the trend is about to run out.
When the dots are below the line, it tells you to buy. When the dots are above the line, it tells you to sell. Pretty simple, right? I knew you could do it!
With some strategies, you can also use this indicator to determine where to put your stop loss. By doing this, you can feel relatively comfortable that the market will not reach the stop loss. It is close enough to protect your account but not so close that it's going to touch it randomly.
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