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Trading Currencies with the Parabolic SAR Indicator
Trading foreign exchange currencies (forex) can be a complex and daunting task for investors and traders. In the trading world, indicators play a crucial role in guiding buying and selling decisions. One popular indicator many successful forex traders use is the Parabolic Stop and Reverse (PSAR) indicator.
What is the Parabolic SAR Indicator?
The Parabolic SAR is a technical analysis tool devised by J. Welles Wilder Jr., the mastermind behind several popular trading indicators. The PSAR indicator is designed to provide entry points, and exit points, and indicate the direction of a currency’s trend. It is depicted as a series of dots either above or below the price bars.
Understanding the PSAR Indicator
When the PSAR dots are beneath the price bars, it signals an uptrend, suggesting that it may be a good time to buy. Conversely, when the dots are above the price bars, it signals a downtrend, indicating that it might be an ideal time to sell. The PSAR is also used to set trailing stop-loss orders. The concept of ‘stop and reverse’ implies that, as soon as the trend in price movement reverses, the PSAR indicator also flips sides relative to the price.
