Best Parabolic SAR Strategy for Day Trading Crypto, Forex & Stocks

[00:02] leading cryptocurrency copy trading platform earn up to 630 worth of rewards description below in this video i'll be showing you a simple high win rate parabolic sar indicator strategy so without further

[00:16] ado let's get on with the video the parabolic sar or also known as the parabolic stop and reverse is a simple to use trend indicator that does a very good job of providing us with both entry and exit signals

[00:31] so first let's apply it onto our chart so you go to the indicator section type in parabolic and click the one that says parabolics are now for the settings i prefer to leave it as it is and just use the default settings

[00:45] look like immediately you'll see multiple dots that is positioned to be either above or below the candle and the way we analyze the market using this indicator is actually very simple if the dots are positioned below the

[00:58] candle it indicates that the current market is on an uptrend candle it indicates that the current market is on a downtrend the distance between the dot and the candle also reflects how strong the

[01:12] trend is the further it is from the candle the stronger the trend let me show you an example so here we can see that the dot is below the candle indicating that the current market is on an uptrend then as the

[01:24] uptrend starts gaining momentum notice that the distance between the dot and the candle also increases and after that as the momentum starts getting weaker the distance between the dot and the candle also becomes narrower until

[01:36] finally the dot switches to above the candle indicating that the direction of downside now i'm going to show you the different parabolic sar so first a common strategy that is often

[01:52] used by beginner traders is they simply take long or short entries based on the position of the dots alone for example when the dot switches to below the candle they take long positions and when the dot switches to above the

[02:05] candle they take short positions now despite this being a famous strategy there are actually a couple of problems if you use the indicator this way firstly the parabolic sar is a trend indicator meaning it only works on

[02:18] trending markets remember markets aren't always trending it can also move within range and because the parabolics are is constantly showing signals non-stop it means that it'll also show signals even when the market

[02:31] example here we can see that the parabolics are switches to below the candle indicating that the market is on an uptrend and according to the strategy we take a long position here

[02:44] we can see that the trend has ended and the market started moving sideways however notice that the parabolic star is still displaying entry signals even a result all the signals that the indicator displays on this ranging

[02:58] market ends up being a loss so in short the parabolic star only works on trending markets if the market is on a range like this it will display the second problem with using the powerball xr this way is that it doesn't

[03:13] consideration let me explain so let's say you enter a short position here because the parabolics are switches to above the candle overall chart you can see that the overall market is

[03:28] actually on an uptrend so if you took a short position here based on signals you are actually trading against the overall trend which is not a good idea and that is why the solution to this is you need to combine the parabolic star

[03:42] the long term an example of that would be the 200 period exponential moving average so here's how the full strategy would work the first step is you want to identify the long-term trend and you can do that

[03:56] by looking at the position of the price relative to the 200 ema for example if the price is above the 200 ema it indicates that the long term trend is up and if the price is below the 200 ema it indicates that the long term trend is

[04:11] now once you've identified the long-term trend the next step is you want to wait for the parabolic star to show the same signal as the long-term trend for example here we can see that the price is below the 200 ema indicating that the

[04:24] long-term trend is down this means that we're waiting for the parabolic star to also show bearish momentum by waiting for it to go above the candle once this happens you take a short position now it's the same for long positions as

[04:38] here we can see that the price is above the 200 ema indicating that the long next you want to wait for the parabolic star to also show bullish momentum by waiting for it to go below the candle once this happens you take a long

[04:54] position and so by simply adding the 200 ema into the strategy you can now safely trade the parabolic sar while making sure that trend now moving on

[05:07] besides using the parable xr as an entry strategy you can also use it as an exit strategy as well and one of the most common ways that traders use it as an exit strategy is by simply waiting for the parabolic star to switch positions

[05:19] let me show you an example so here we can see that the price is above the 200 ema while the parabolic star is below the candle and according entry now for your exit strategy you can let

[05:33] until the parabolic star switches positions so once it switches you can however by doing this notice that the price had already made a significant downwards movement before the parabolic star displayed an exit signal meaning

[05:48] you already lost a portion of your profits because of the late exit signal a better way so first let's rewind back this trade now instead of waiting for the parabolic star to switch positions before exiting

[06:03] your trade you can instead set a stop loss at the parabolic star itself so if you enter a long position here you can set your stop loss below here at the and for profit target you can set it at 1.5 times your stop loss

[06:18] trades run until the price hits one of the target and as you can see using this exit exit signal compared to if you waited for the dots

[06:30] to switch positions now there are times where the parabolic star is placed too far from the candle like in this example here we can see that the parabolic star is positioned way below the candle meaning if you set

[06:44] your stop loss all the way down here you'll be risking a huge amount if the trade ends up being a loss and so if you think that a stop loss is placed way too you can just adjust it depending on your personal risk tolerance

[06:58] now moving on the next high win rate strategy that you can use with the parabolics are is by using it to find divergences so first what are parabolic star divergence so a parabolic star divergence is when the

[07:12] direction of the indicator let me show you an example so usually if the price is heading upwards the parabolic star will follow that direction and also head upwards similarly

[07:25] parabolic star will follow that direction and also head downwards there are times where they move in the opposite direction instead like in this example you can see that the price goes down but the parabolic star is going up

[07:39] this is what's called a divergence and usually when a divergence has been formed it may indicate that the trend will form a continuation therefore giving you a possible trade opportunity so here's how the strategy works

[07:53] the first step is you want to find a divergence and to make it easier to find a line chart next you want to find instances where opposite direction of the price like in this example here we can see that the

[08:08] parabolic star is heading downwards but the price is heading upwards instead and so this will be your divergence now the question is how do we know if this is a bullish divergence or a bearish divergence so to answer that question

[08:22] of the price as the divergence is forming so in this particular example we upwards meaning this is a bullish divergence entry signal so for your entry signal after the

[08:38] bullish divergence has been formed you want to further confirm the bullish momentum by waiting for the parabolic sr to switch below the price so once this you enter a long position now for your stop loss you can place it

[08:52] at the parabolic sar and set your profit target at 1.5 times your stop loss here we can see that the parabolic star is heading upwards but the price is

[09:05] heading downwards instead meaning we just found another divergence now since the price is moving downwards as the divergence is forming it divergence next for your entry signal you want to

[09:19] confirm the bearish momentum by waiting for the parabolic star to go above the candle so once this happens you take a short position now for your stop loss you can place it at the parabolic xr and set your profit

[09:32] target at 1.5 times your stop loss and as you can see

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[10:51] much for watching and i'll see you in the next video