Parabolic SAR: (Developed by welles Wilder)
Parabolic SAR not only deals with price but also with time. SAR stands for Stop And Reverse. Very important point we would like to expose here - if you have read our previous article, introduction to technical analysis, in that we have released a statement, trading against the trend is one of the two types of trading which would be done preferably during consolidated markets. But this study contradicts our statement as this is a reverse trade going against the trend and at the same time not preferred during dull markets. It works well in good volatile markets. This only feature differs this overlay method with others.
In simple, if the parabolic indicator is below the price, markets are said to be in buy position. If the parabolic indicator is above the market price, bearish trend might start.
Specialty of SAR trade is that it also delivers trailing SL in case of volatile markets. In the chart shown, after an entry point, the indicator carries with the time and allows us to trial the stoploss till the bullish signal starts. A good volatile market gives less and accurate signals whereas a range bound markets give plenty of signals with no good accuracy.