How to Trade with the Parabolic SAR Indicator on IQ Option

Every time you open the IQ Option trading platform your goal is to make money trading.

But how do you accomplish that and ensure that it is something you can count on, consistently?

By trading on asset price actions!

But since nobody knows where the financial market is going next, all that’s left is for you to do predictions.

With the parabolic SAR indicator, it gets easier.

The Parabolic SAR helps you highlight the possible direction an underlying asset is taking.

And it doesn’t stop there.

Once you’ve identified an imminent trend in the market, you need possible entry and exit points – which again are easily shown on the indicator.

But what is this parabolic SAR?

What is the Parabolic SAR indicator?

This is a technical analysis tool used to analyze the market, show price directions as well as show when a change in the chart is eminent.

Parabolic SAR is also known as ‘stop and reverse’, and it was developed by J.Welles Wilder Jr., the inventor of the relative strength index (RSI).

On the trading charts, the Parabolic SAR appears as a line of dots moving either below the price or above it.

Later on, we will discuss how to decode the parabolic SAR signals.

But for now, let’s look at how the Parabolic SAR works.

How does it work?

It works based on a simple principle.

Whenever the price touches one of the Parabolic SAR dots, the indicator changes direction and appear on the opposite side of the price line.

Such happening is a signal that you should expect a trend reversal or the trend is losing momentum.

Look at the image below

Parabolic SAR indicator

As you can see, each time the Parabolic SAR touches the price line, there’s a change in the trend direction.

How to trade using the Parabolic SAR indicator on IQ Option.

Right off the bat, you should use the Parabolic SAR indicator to trade strong trends. Those are not my words but from Welles J. himself.

With that said, you should refrain from using this indicator to place short term trades and sideways actions.

Why?

Because the Parabolic SAR loses its predictive edge under such situations and instead, return false signals.

You don’t want that, do you?

Basically, when the indicator’s dots are below the price line, you should enter a buy position.

On the contrary, you should enter a sell position when the dots are above the price line.

It is that simple.

How to add the Parabolic SAR on IQ Option.

Now that you know how the Parabolic SAR indicator works and how to trade its signals, let’s look at how to add the indicator to your trading chart on IQ Option

  • Login to your IQ Option trading account, locate the Indicators tab on the bottom left corner of your trading chart.
  • Click on the Popular tab.
  • Select Parabolic SAR from the list of indicators.
  • If you are satisfied with the indicator’s default settings parameters, go ahead and click Apply to add it to your trading chart.
  • Otherwise, click on Setup & Apply tab to tweak the indicator’s settings to your liking.

Parabolic SAR indicator - Kenya Forex Expo

As an addition:

If you want to make changes to the Parabolic SAR settings, here are my suggestions:

  1. Acceleration
  2. Acceleration max

What can you do with them?

Well, if you want the indicator to be more sensitive, consider increasing these numbers. But there’s a catch.

You will be sacrificing the indicator’s accuracy.

Decreasing the numbers will have the opposite effect: it makes the Parabolic SAR indicator less sensitive, but with less false signals.

As you can guess, the real task is in finding the balance between the indicator’s accuracy and speed.

What to do next.

The Parabolic SAR is more of a trading strategy than a technical analysis tool.

Additionally, this indicator works best when combined with other indicators especially the simple moving average (SMA)

Otherwise, it is now your turn to try what you have learned.

Get the IQ Option free demo account now and start practicing.

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