The parabolic SAR is another indicator that helps traders to determine trend direction and potential reversals. Sometimes the indicator is called as the "stop and reversal system".
On a pricing chart, the parabolic SAR appears as a series of dots located either above or below the price bars. A dot below is considered as a bullish signal. A dot above the price bar illustrates a bearish signal.
When the dots toss, it is likely that a potential direction change occurs in the nearest future. As the price of an asset grows, the dots will rise as well. When the price declines, the dots go downside.
Moreover, traders can place their stop loss orders at the SAR value, as the move beyond the dots could be a signal of a reversal.
The parabolic SAR gives more precise information when the market has long rallies and downturns. The indicator can provide false signals when the price consolidates, or due to rough market conditions.
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