Once a trend has been built, the market makes some of its most significant and powerful moves. At the same time, the trend may exceed general expectations when put on hold, as no one can actually predict for how long it will persist. As a result, only the most skillful and experienced traders can make some good profit.
The ability to conduct an in-depth analysis of the trend states can be a vital skill. Traders tend to use different instruments to complete the task. PSAR indicator is one of those useful tools. In this article, we will introduce the Parabolic SAR and explain how it works and what it tells.
What Is PSAR Indicator?
Also known under the “stop and reverse” name, the PSAR indicator helps traders to clarify the future short-term asset’s momentum. It can be applied to a particular trading instrument. Developed by J. Welles Wilder, Jr., a famous technician, the tool makes it possible to locate the best position to place a stop loss.
On the one hand, Parabolic SAR seems to be pretty easy. On the other hand, it comes with a complex calculation making it hard for newbies to make the most of it. This is why the instrument mainly applies to professional investors.
What Does PSAR Indicator Tell?
When activated and used with MT4, the indicator generates a curved pattern that appears on the price chart. The pattern can be used to identify potential price reverse or stop levels. As a result, you have a pattern that is similar to those used in mechanics and geometry. By the way, this is where the tool originates and this is how it got its name.
Parabolic SAR appears to be a flexible tool. It means that users have a chance to modify it. However, to understand how the indicator works, you need to clarify the calculation behind the instrument. If you do not want to dive deep into formulas and special terms, you can leave it to MetaTrader 4. The trading platform will do the calculations for you without the need to do it manually, which is definitely a great advantage for beginners.