Parabolic SAR indicator
Hi there!
Our indicator today and as like as a lot of the previous indicators was introduced by Welles Wilder in his book “New Concepts in Technical Trading Systems”. It’s the Parabolic SAR indicator.
What’s the Parabolic SAR indicator?
The word SAR stands for “Stop And Reverse” and this name clearly indicates the functionality of the indicator.
The Parabolic SAR indicator follows the trend and stops when the trend near to reverse.
The above sentence telling us all about the Parabolic SAR indicator:
1- The trend must be exist first before relying on the Parabolic SAR; which means the Parabolic SAR works perfectly in the trending markets and times while it works very bad when the market start to move sideways.
2- The Parabolic SAR indicator has no answer for the questions “When to enter the market?” and “Is the market trending or not?” but it has a very good answer to one of the most important questions “When to exit the trade?”.
Formula:
The Parabolic SAR indicator in MetaTrader takes two of the parameters that used in its calculation (Figure 2):
Step: This is the acceleration factor used in calculating the Parabolic SAR, The higher the Step value is set, the more sensitive the indicator will be to price changes. Wilder recommends setting the Step parameter to .02.
Maximum: This is the value of reverse when the Parabolic SAR reach it. Wilder recommends setting the Maximum to parameter to.20.
The calculation of indicator then uses one of two formulas depending on is it long or short position:
Long:
SAR(i) = SAR(i-1)+Step*(HIGHEST(i-1)-SAR(i-1))
Short:
SAR(i) = SAR(i-1)+Step*(LOWEST(i-1)-SAR(i-1))
How to use the Parabolic SAR indicator?
The main usage of the Parabolic SAR indicator is as a trailing-stop technique which means the Parabolic SAR will tell you the best time to exit your trade by giving you the best value to trail your stop losses.
At the beginning of the trend the Parabolic SAR dotes are far from the price hence there’s a room for your trailing stop to be wider. As the trend goes weaker the Parabolic SAR dotes come near to the price and you’ll have a tighter trailing stop.
When the Parabolic SAR dotes goes below the price you use its value to trail stop your long position.
When the Parabolic SAR dotes goes above the price you use its value to trail stop your short position.
Psycho-strategy
Hi there!
Maybe it seems as a strange article in the context of the previous series of articles whereas the previous articles were talking technically voice about indicators and strategies used in trading Forex.
This article is talking about trading Forex too but from another point of view; the psychology point.
I’ve found it’s very important to include this article in this series of indicators and strategies articles because I consider it a Forex trading strategy; that’s why I’m calling it “Psycho-strategy”.
What’s the Psycho-strategy?
I’m sure you understand that the Psycho-strategy is a mere metaphor, however we are going to use the same Forex terminology to describe our hypothetical strategy.
The Psycho-strategy is the mind frame you have to set your mind to if you want to make constantly profit in the world of Forex. It’s the way you have to think and feel in the three stages of the trade; before opening a trade, while the trade is running and after closing the trade.
The first thing I have to advice you before reading this article is that you have to to believe that using the Psycho-strategy is not less important than using your technical and fundamental strategies if not important! if you can’t totally believe that I recommend you to skip this article and continue with your favorite technical and fundamental venerable strategies.
The Psycho-strategy setup:
The the Psycho-strategy uses three indicators: Discipline indicator, Greedy oscillator and Fear oscillator.
We use these indicators not to tell us when to enter the market (there are much better techniques to enter the marker where the Psycho-strategy can help) but we are using them to refine our overall trading practice hence our success in the Forex world.
Let’s start with the most important indicator; the Discipline indicator:
Discipline indicator:
It is unquestionable that nobody could achieve a goal if he have not already set this goal. Give the best archer the best tools and tell him to shot aimless target! what do you think he will do?
In the Forex (and in live un general) you have to define your goal and keep it obvious if you want to achieve it. For example you have to determine how many pips you want to gain daily, weekly and monthly from your trading.
Your goal have to be realistic, attainable and measurable: realistic goal means you have to set a goal that is not impossible for you and anybody to achieve, for example you can be a millionaire from trading Forex for few weeks or months. attainable goal means you can easily achieve the goal for example gaining 100 pips daily is not impossible in Forex trading so it’s a realistic goal but 25 pips per day is more attainable goal, get it?
The goal you have set have to be measurable which means you can easily say I’ve achieved my goal of today or this month. Goals like “I want to be a millionaire or I want to get the maximum pips the market could offer” are not measurable goals.
The first line in the Discipline indicator is the Goal line, the second line in the Discipline indicator is the Rules line.
Any successful person has his set of rules which he extremely bind himself to it, you too have to set you trading rules and obey them to the end, for example one of successful traders rules “Set stop loss before trade”.
You have to discover your trading rules and more important to obey them to the end, of course you can change this rules occasionally (i.e. every six months you have to review your trading rules) but once you have set them you can’t change them “Rules couldn’t’ be changed while playing the game”.
The Discipline indicator now has two lines: Goal line and Rules line; these lines have to be unbreakable, untouchable, you have to limit you trade between these lines and don’ let Greedy or Fear indicators to breaks your Goal and Rules lines.
Fear and Greedy oscillators:
The fear making of loss and Greedy of making more profits are very like bulls and bears that imagined fighting each others and move the market accordingly. Both of the fear and greedy trying to break your Discipline indicators lines.
Fear of losing maybe advising you to ignore setting stop loss for you trade and break one of your trade rules. Fear maybe asking you to close a profitable trade once the market start to move against you for awhile.
Greedy acts the same trying to break your rules but inversely of fear; Greedy will tell you to continue in a profitable trade although you Goal has been achieved seeking more pips. Greedy will advice you to remove your trailing stop hoping o make the maximum of he market.
As long as Fear indicator and Greedy indicator oscillate between the Discipline upper line - Goal line - and lower line - Rules line - you will constantly make profits with the Psycho-strategy!