How to use Parabolic SAR strategy Effectively

welcome to this video on how to use
parabolic SAR strategy effectively and this is an indicator that a lot of people
really like and in its concept it’s one of the most simple and easy to follow
parabolic SAR indicator so I can see why people would like it so much
and basically this indicator was created well first of all SAR stands for stop
and reverse and some people consider it a trend following indicator and it can
be used for that and so what we’re looking for here is this where you’ve
got these dots see these dots overhead here and as long as those dots are above
price then we’re short I’m going to simplify things here maybe over
simplified then when the dots go below price levels then we go along with a
bullish signal and the other thing that’s kind of nice about this is that
so creates a that’s where the quality a trend-following indicator is that the
parabolic SAR strategy is to go short when dots are above it and long when
dots are the low price and then it also serves as a trailing stop so you just
follow this long as long as the price where as long as the dots stay below the
candlesticks then you stay long and then when it gets above now see here this of
course is nothing’s perfect and everything has you know two little
parameters whatever perfect parameters you think you’re going to come up with
will never be perfect for every situation so here we get one that goes
above and comes back down below within one bar so that would have stop and
reverse you out and of course you wouldn’t want to really be stopped and
reversed out that’s one of my issues with the indicator is I don’t like the
term stop and reverse because it implies that trends that go up and then they go
down and that’s not typically how trends actually go so to stop in Reverse means
that you stop out of your long trade and you go short the the downtrend that
there’ll be a trend following but really what seems happened most of the time in
markets and of course things change all the time but more often we get enough
trend and then the market can go sideways for a little while and so this
is why trend reversal trades usually have a worse than 50/50 win-loss ratio
never to go sideways for a while may say okay well then it’s gonna go short not
necessarily sometimes it’ll continue into an uptrend so I don’t like this
whole concept of SAR stop and reverse and calling it that so sorry to the
classic technical analysis fanatics but that’s my personal opinion
feel free to disagree with me it’s a free country free world whatever well
the world’s not free unfortunately but anyway you’ve my permission to disagree
with me type your comments in the comments below if you do and I’m a big
boy I can deal with that so then let’s take this off of here and see what
happens so and you can see now the we run into some problems
let me just narrow this down a little bit change our scaling so we had the the
first example I showed you looked pretty good right so it kept us into that trend
here let me go back there old first a little bit and just show you that again
so here that would have worked out real nice so just like most trend trading
techniques they all look great and a lot of indicators look fantastic as long as
you’re in a trend and those are the kind of examples that they’ll put in their
text books and their videos and all that kind of stuff
and that’s beautiful except for one problem the market
don’t trend most of the time so I don’t know what the exact steps are anymore
they vary I’ve heard well 30% I think that’s aggressive I’ve heard 20%
now lately I’ve heard markets only turned about 15% I do believe that the
markets are trending less and less frequently and by the way when this
indicator was created it was actually before of the time of the computer age
so let’s also be clear about that and the computer age when the computer age
came in then Marcus started trading very differently price patterns changed
differently or started forming differently so if you trade
methodologies based techniques that were developed before modern computer
technology entered the markets you’ve got a prop you got a big problem you’ve
got a big big problem it’s not gonna work for you so anyway so what we have
to have happened here is what is typical so alrighty so I showed this one a
little dot here and then it goes back down so now we’re supposed to be in it
uptrend and then the dots go back above price bars and we’re supposed to be in a
downtrend but market didn’t really go down did it so then the price comes
below the price bar so when we’re supposed to go up
well doesn’t go up much and then the bar the indicator goes above the bars and so
now we’re supposed to go down and then the bars go below and we’re supposed to
go up and then they go above I was supposed to go down but the market
actually ends up going up well the parabolic SAR is above it so
this is the problem you get this kind of stuff happening when you’re in a non
trending market and by the way the definition of trend is not direction the
definition of trend is not higher highs and higher lows anybody’s told you that
those are wrong definitions and they will mess up your trading because trend
is defined by Webster’s dictionary Webster’s dictionary is the extended
direction of well anything so extended general direction means a long-term move
these are short-term moves and therefore none of these are trend and that’s why I
personally and her ethically do not consider the parabolic SAR to be a trend
indicator does not indicate long-term moves as demonstrated here and you will
see this you might say well that’s just one example fine pull up your own charts
and you’re gonna see plenty of examples like this so in my mind it is not a
trend indicator at all can it be a decent trailing stop at times in
trailing in training markets yes yes it can be okay I still don’t prefer it as a
trailing stop why because for example it starts too far away from the market so
here is our first signal on that bar right there and look how far away it is
sure it tightens up but may protect my initial protective stop it’s too far
away I don’t want it to be that far away initially so anyway it can be used
though but the point is it can’t be used alone in fact no indicator and I’m not
trashing the parabolic SAR so let’s be very clear about that because I will say
this about any indicator no one indicator will make you money now this
one now stochastic snot MACD not RSI and not CCI not LMNOP whatever acronym you
want to put to it no indicator makes you money there indicators and so it’s an
indicator well the the answers and the question they indicate what they don’t
do is make you money directly otherwise we would call them moneymakers so cannot
still be used can it be helpful in your trading and the answers yes it can be
helpful as part of a complete trading methodology so as I’ve implied here it
can work pretty darn well and those we’ve actually seen it can work pretty
good for a trailing stop especially after the
market starts moving a bit I don’t like its initial potato stop there’s the
market starts moving a bit yes it can be a pretty decent trailing stop but only
in trending market and it does not define the trending market so therefore
one of the things that we will have to add to it is a trend indicator of some
sort so you can use whatever your favorite trend indicator is but what the
heck let’s for today’s purposes we’ll just use the ADX all right so let’s pull
up the ADX so now I’ve added the 14 period ADX to my charts here and a ninja
trader they call it DM that actually adds DM + + D – I’m not a 10 emails here
I just want to keep things very simple for you today and I put it at a
threshold of 20 so this black horizontal line here is set at 20 so basically when
a DX gets above 20 then it’s considered a strong trend so now we’re adding the
two together alright so we’re not gonna depend on
parabolic SAR for a trend will depend on a DX in this example for it and here is
the spot where it goes above now you’ll notice that it doesn’t normally nail
specific swing highs and swing lows and once in a while it will but periodically
or typically it won’t most trend indicators are by definition lagging
indicators and there’s a reason for that the definition of trend is the extended
general direction of the market therefore you can’t have a trend
indicated until there’s enough data to establish that you’re in an extended
general direction and therefore it is lagging mathematically but if you get
into a trend like this so then it is and by the way all the parameters oh you
can’t even see them sorry about that so I know people will ask me about the
is a parabolic SAR so there they are up at there at the top left corner and I’ll
actually bring those up because I always get this question so sure let’s do it
so parabolic scr there is the input that i’m using for that and for the ad
actually can see a DX here i’ve got positive di o- d i blacked out i don’t
want to see those right now but it’s a period of 14 right and you can
experiment with different periods you can experiment with different threshold
lines i’ve got it at 20 different people use different periods that’s fine
there’s no magic period but anyway so what we do here is we say okay so now
we’ve got a trend established and this point and we’ll use this as our trailing
stop our parabolic SAR as our trailing stop not gonna use it as a stop and
reverse necessarily but and so there we go
now what you’ll also notice is that the ad ax starts coming down here and that’s
also kind of a little signal that okay maybe we have put in a high and so this
whole situation here where parabolic SAR went above the bars then below bar at
the bars down above the bar is real quick you also see a confirmation of
that here on the ad X where it’s diverging and starting to come down so
and it just it comes down down down now don’t think this the one thing I don’t
like about the ad X is that it doesn’t indicate a trend after you got to the
top coming back down you’ve gotta wait for it to reset below the threshold line
in this case 20 so this does not indicate a downtrend just because it’s
coming down and therefore you’ve got to wait this period all this period the
indicators really not telling you anything other than maybe might be
indicating that okay it’s good to get out of your long trade but know you’ve
got to wait for it to reset before you get another trade signal a
lot of time can go by as you see this is a daily chart and you know couple months
go by so and then by the way just to show you what we showed before so all of
this noise is here let we looked at if you look at that noise and you say wait
a minute gave us a long signal here a short signal here long stood only here
short signal here a long statement short signal that whole time
ADX was first of all declining back down to the zero line and then it stayed
below the zero line indicating that there’s no trend therefore we don’t want
to use the parabolic SAR in that situation so this is where you combine
different types of indicators for different purposes in order to develop a
successful trading methodology so if you liked this video if you found it helpful
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95 thoughts on “How to use Parabolic SAR strategy Effectively”

  1. Love yer subtle humor comments. (facetious, w/ a hint of sugar on it….lol) I like your CCI video best. Have been getting familiar/comfy with it, per specific instruments or underlying's correlations/consistency with it.Surprised tho' that u've posted on FX and Bitcoin as i've  heard mostly bad news (corruption/manipulation) in the past, and maybe presently too (??). Don't see/feel them as "legit" to trade. Wouldn't think you to trade them either. Just sayin'……Tks 4 posting all your vids. Newbies need help, and oldies need reminders. 🙂

  2. Very good video, I was always suspicious about the faith that my fellow (losing) traders had in this indicator alone, Barry Burns always seems to come up with original and fresh ideas about trading, well explained and easy to follow. Thank you Barry

  3. Very interesting.  I am going to try this with ADX. Also, please let me know where and how  to find Swing  high and low indicator with precision.
    Also, I am interested in knowing about the rubber band strategy.

  4. It was great watching your videos… keep going … plan for fundamental analysis video also or ask some one who can teach us in best way  my regards

  5. Thanks for these videos sir…they apply to crypto markets usually as well. Would be very interested to see tool uses in the 24/7 markets (lot of the times the inputs are different). I know you don't care about specific charts but yeah. Thanks!

  6. Hey Barry, I was wondering if you use Parabolic SAR with any of your actual trades? I remember in a video you had using SMA(50) on a 30 minute chart, that was your suggestion for that timeframe. I'm trying to incorporate an SAR with that timeframe as well, just testing systems really, trying to develop a reliable and profitable one. Do you suggest this combination or is it most likely a waste of time? Wanting to trade on the 30 minute chart with an SAR, I set it to SAR(0.01 , 0.1). It seemed to look the best, according to my rookie self 🙂 The default setting is SAR(0.02 , 0.2). I also use some VPA as well. What do you think overall?

  7. Hi Barry, I really like all your videos. Very helpful! I would love to see your videos on CNBC news or FOX news. If you could share the link on your channel. I tried searching on youtube for them, but unsuccessful. Thank you! 🙂

  8. HI, your videos are like a free and extra large glass of juice which is full of juicy and high quality fruits of knowledge. thanks man for your work. appreciate your work. God bless you.

  9. Thanks barry wonderful vedeo . can u make a vedeo about how to predict trend before trend occurs and how many points it may go up or down. If so kindly make.

  10. thank you sir. your parabolic sar lesson help boost my trading experience. i use SAR with ADX and trade only trending pairs. Thank you once again.

  11. G'day Barry. Thank you for making an honest video; unlike so many others who say following the parabolic sar alone will make money. There is no doubt that following the parabolic sar by itself will result in a loss. But here's another strategy. If you make a loss by following the parabolic sar alone, then surely, you've got to make money by going against it. For example, say that on the 12 hr or daily chart, each cycle of the parabolic sar in a ranging market goes for say, 80-100 pips (i.e. 80-100 pips false signal), and in a trending market each cycle goes for say, 400-500 pips (i.e. 400-500 pips correct signal). So according to the above example, if you then go against the parabolic sar and set a stop loss of say 150, in each ranging cycle you will make 80-100 pips profit. And in each trending cycle, you'd lose 150 pips. And since it ranges a lot more than it trends, you'd make a profit overall. In this case, you're not trying to make money by using just one indicator. You're making money by going AGAINST an indicator that consistently loses money all by itself. I mean if I'm following the parabolic sar and losing money, and at the very same time, you're going against it, surely we can't both lose money, right? BTW, I'd use this strategy more for things like gold and crude oil and less so for something really volatile like silver. Sorry for the long winded explanation. What do you think of this strategy?

  12. Dr Barry's courses are Absolutely Essential in becoming a successful Day & Swing (My Style) Trader. Money well spent !!!

  13. Thanks for this. I like your teaching style and you obviously know trading well… I'll be following you. I'm trying to learn, not just run EAs, etc.

  14. Is there a reason you would use ADX with a 20 crossover vs a MACD crossover? Is one better than the other as a 'trend' confirmation?

  15. That was a great lesson. On to the rubberband trade strategy. Thank you, brother. …Just checked in you vid section, nothing with "rubberband" in the title. Which video am i looking for?

  16. Thank you Barry, I reallyl enjoy your videos. They are helpful. I was wondering, what is your particular set of indicators that you would use for trading cryptocurrency at a 30 m period, and what the settings for those indicators would be.

  17. Should be called Stop and let it retest the previous low or high than reverse. Only then should you enter. Parabolic is a great signal for reversals and trends.

  18. Hi, I have a solution to the problem you indicated – psar works in trending markets and most of the time, the markets are not trending. The solution is to look at securities that have high volatility (up / down a lot, like the leveraged funds) and then I look at the daily charts for overall trend in psar, and then go to the 78 m chart and trade from there. Been pretty successful for that. Plus I use MACD. Could also use your secret trend oscillator……….works great. Would be great to hear your views.

  19. If you use the Parabolic SAR in conjunction with two exponential moving averages, which give you a good entry point, you should be able to get a good idea of where the market is going.

  20. In my experience all these tools fall short. The only reliable method is to trade against known support and resistance. Price gravitates to these areas. Once you understand how the algos work things become much easier.

  21. Thanks for the vid! One comment: I would of love it if you described which timeline can be used (min/max/advised) and the type of market it is compared to (if that make any sense… just learned indicators can be good for some stocks & bad for others so maybe a % of volatility could help to know when to use one or another…?)

  22. This would perform better starting out near the market open on strong trending movers, then watch for an exit signal. This would be more likely to generate head fake signals for the rest of the day once the uptrend or downtrend is broken. I am not clear on how he is deriving trailing stop levels from this indicator. More discussion on that is needed.

  23. Sir you have great knowledge, but sorry to say, your teaching will not help any retail trader to make money, because you are not giving detailed explanation like, combination of indicators for different time frame, their setting, how to scan stocks for day trading before market opens, you should make different playlists for day trading, swing, & positional trading with complete technical analysis.

  24. Thanks for the explanation, but I don’t like when people say indicators are not money makers. There are even successful traders that only base their trading on indicators and they have made a lot of money.
    I don’t use trend lines. I use moving averages and oscillators, and sometimes, Fibonacci to see the targets. I don’t analyse more than that and I’m successful.
    Elder based his strategy on MACD and a simple envelope. No resistances, no supports, no trend lines. So, no analysis at all.

  25. Nicely done. Nicely presented. Much food for thought, which, in any endevor, can only make one better at their craft.

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