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Parabolic SAR is an indicator in forex trading that is quite commonly used. Parabolic SAR on MT4 looks like dots that are above or below the running candlestick. These points are the results of calculating data from the previous high or low, combined with several other indicators.
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We will not discuss what constitutes it, but what we will discuss is how to use it. As you can see, Parabolic SAR shows the direction of movement of the candlestick. The current trend is indicated by the opposite of the position of the indicator. So, when this indicator is below, it means that the current bias is bullish. Conversely, when the point is above the candlestick, the current bias is bearish for a pair.
Parabolic SAR is commonly used for traders who are waiting for medium and long-term moments. Because, for scalpers who are waiting for the short term, this indicator is not suitable for small time frames or when the market is sideways. This is because if the Parabolic SAR is too close to the candlestick then the possibility of touching the point will also be large and change the trader ‘s perception of the ongoing trend.
The farther the point of the candlestick, it means that the trend will continue and the closer to the candlestick, meaning the trend will end soon and get ready for the possibility of reversing direction. When a candlestick touches Parabolic SAR, the dot will automatically move in the opposite direction, as in the picture above.
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Usually, there are default settings for this indicator such as MT4 or we can adjust how many settings are appropriate for us. The bigger the number, the farther the Parabolic SAR point and vice versa, the smaller the number in the setting, the closer the point is to the candlestick. If it is too close or too far away, it is feared that the indicator cannot show the true potential, instead it will tend to give the wrong signal.
It looks easy to use this indicator, but there are a few things to watch out for. First, the indicator only shows the tendency of direction, not a certainty of direction. It could be that the price actually reversed after the opposite Parabolic SAR appears (although it rarely happens) so that it becomes invalid. This happens when entering periods ranging and sideways.
Second, Parabolic SAR is a leading indicator. Like leading indicators, lagging indicators should also be included to filter out possible trading errors, especially when entry will be made. This indicator rarely gives the wrong signal, but still we must be careful with all the possibilities that exist.
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In terms of usage, this indicator has been used in many types of markets, including the stock and bond markets. But usually, Parabolic SAR is more often used in forex trading and analyzed in more depth to trade in the forex market.
The advantage of this indicator such as it is a leading, so that traders can enter and trade using signals that are visible from the place of this indicator. Another advantage, traders can be careful to trade when the point and candle are getting closer.
The weakness of this indicator, just like other indicators are not suitable for small time frames, under H1. This is because the data collected is too little so the indicator algorithm is likely to be biased and make the trend incorrect. Another thing, this indicator must be set first in order to match the wishes of traders.
With all its advantages and disadvantages, Parabolic SAR remains one of the most widely used indicators.