Parabolic SAR is a trendy indicator developed by Welles Wilder in the late 1970s. It is mainly used to recognize trade entry and exit signals when applied to a price chart. In addition, Parabolic SAR can also be used as a confirmation tool in your other trading strategies. The price of a pair cannot stay at the same level for a long time; this is the idea behind the strategy. If it does, then there must be an underlying reason that drives price in this particular direction.
The indicator can be applied to any chart timeframe (from M5 to MN) and works well on all kinds of financial instruments, including stocks, futures, and currencies pairs. However, most traders use it for intraday trading (5-30 minutes timeframe) or swing trading (2-5 days). Let's consider each of these timeframes in more detail.
Trading on the 5 min chart is best suited for day traders who take short breaks from their regular jobs. Trading such short timeframes means you'll need to recognize the price momentum as early as possible and not waste any unnecessary minutes. If you manage to do so, then Parabolic SAR can be your best friend because it helps you find those strong trends that you want to jump on. Furthermore, this trading strategy works great for trading breakouts which happen most of the time on lower TF.
As you can see, applying this indicator to 30 min charts works pretty much the same way as it does on 5 min ones. Also, some minor differences are happening; you have to learn about them before trading with them. For example, this indicator is not as responsive on longer timeframes and will sometimes lag behind price action. As a result, there's a greater probability of getting false signals which means you should always apply additional technical analysis with Parabolic SAR to validate your trades.
Trading on the daily timeframe is best suited for long-term traders looking to catch the significant, long-term moves that happen once in a while. The main idea behind this trading strategy is that you need to plan your trades ahead of time and follow the price action closely because it rarely reverses its direction. The reason why Parabolic SAR works great on daily charts is that it allows you to place your trades ahead of time. So, if you predict that the price will continue increasing, you can bypass all pullbacks and only take long positions.
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