While making a trade decision for a financial asset in the Forex market, it is necessary to know the direction of the related asset and determine the possible region where the transaction will take place. The SAR indicator which is the combination of the first letters of the words, Stop and Reversal, is an indicator that helps us see the trend and it draws attention as an indicator that is used when determining the Buy-Sell point. The Parabolic SAR indicator was developed in 1976 by J. Welles Wilder who helped the Relative Strength Index (RSI) indicator to gain the fame it has today.
In order to reach the Parabolic Sar indicator in the MetaTrader platform, you can respectively click on ToolBar, Insert, Indicator and Trend.
There is generally no need to make any revisions neither on “Step” nor “Maximum” parts while adding to the platform. For it to look more effective on the graph, I will share the indicator interpretation with you by changing the standard “Lime” color with “Red”.
Parabolic Sar Indicator’s Positive or Negative Expectation Condition
The most crucial thing to know about the indicator is to follow whether the points on the graph are under or over the price and also, whether the distance between the points increases or decreases. You can easily interpret the comparison between the Parabolic Sar indicator and price as support or resistance.
*** If the financial asset that is to be bought or sold wants to create a positive pricing behavior, the Parabolic Sar indicator acts as support, meaning the price is over the indicator.
** *If the financial asset that is to be bought or sold wants to create a negative pricing behavior, the Parabolic Sar indicator acts as resistance, meaning the price is under the indicator.
*** The increase or decrease of the distance between the points can be explained as the trend pricing behavior related to the financial asset subject to Buying and Selling. The increase in the distance between the points means the trend is getting strong while the decrease in the distance between the points means the trend is weakening.
The most important thing to know when making investment decisions with indicators is whether the signal the indicator shows you support the trend expectation or not. For example, the BUY signal the indicator gives you while it is in the ascending trend allows the risk to be minimum for a successful result but the SELL signal it gives in the ascending trend might also keep the current risk conditions of the market on the agenda. For the world’s most liquid and biggest market, Forex, Trend is Your Friend theme is very important for the trade performance of the investors.
The indicators used alone cause major losses during the periods of error margins. That is why while buying or selling, the condition of more than one indicator showing a common signal should be taken into consideration. The theme “Trend is your friend.” mentioned above is an important strategy to prevent wrong decisions made with only one indicator.