Could it be wise to trade mainly on signals from the parabolic sar indicator? The simplicity of it tells you what to do in a trending market.
How exactly would you go about it? What would the signal be?
You’d have to have some means of determining when the trend turns into a channel, otherwise trading off the SAR would probably tear you up.
The SAR shows signals to either buy or sell in a trending market. That, confirmed with the RSI keeps it simple.
Identify a trend and confirm it, right?
I’ve heard you can make it work, but I never found much use for SAR. The man who got me into FOREX trading used it while he was learning, but he has since abandoned it in favor of the ichimoku, an indicator I haven’t even ATTEMPTED to learn yet.
That said, I haven’t selected a favorite set of indicators myself yet. I started to work with moving averages, DMI, RSI, MACD, etc., but have since abandoned all the standard indicators to focus on money management. Once I am finished with my money management experiments, I’m planning to go back to trying to figure out which indicators to use. Right now, I’m rather partial to the old fashioned trend line.
Upon reflection, I guess my confusion about the SAR can be summed up like this: Let’s say you see two SAR dots nosing upward, and your RSI appears to confirm this. You take a long position, and sure enough, your chosen currency pair creeps upward for another dot… and another… then your RSI reverses, and you watch helplessly as your supposed trend turns into a decline, or a plunge. Your indicators head downward, now signaling a trend reversal. You stop out. Seeing that the downtrend has solidified, maybe you reverse your position now and enter short. Satisfied, you watch the trend continue downward, until… you guessed it! Your RSI twitches again, and the SAR dots once again decide to meander upwards. Another stop loss, and congratulations! You’ve just been whipsawed twice, and your favorite pair is trending sideways. Presumably at this point, your best bet is to watch for a breakout, or find another pair that appears to be trending.
And what has the SAR done for you?
SAR tool or Stop and Reverse indicator is used to determine exits, not entries. When you have determined a trend, it’s a good signal to exit when SAR goes against that trend. Also It allows you to re-enter on the main trend after a little whipsaw.
In fact, you can’t use SAR mainly to enter the market as market turns sideways often, and big moves happen in a few hours during the day. But again you can’t judge that the US session open is always volatile.