Parabolic SAR in Forex trading
Parabolic – stop and reverse (SAR) is a technical tool used to find trends in prices in the Forex market. Developed by J Wilder and has quickly become a very popular technical analysis tool. One popular use of the Parabolic SAR is to use it as a trailing stop during a strong trend.
The general concept when using his tool is that time is the enemy and all positions should be liquidated unless the security can generate more profits over time. The indicator generally works well in trending markets, but provides "whipsaws" during non-trending, sideways phases. It is recommended establishing the strength and direction of the trend first through the use of things such as the Average Directional Index, and then using the Parabolic SAR to trade that trend.
A parabola below the price is generally bullish, while a parabola above is generally bearish. Many software programs come with Parabolic preinstalled.