Parabolic SAR Strategy

clemmo

Trader
Aug 5, 2016
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It's not clear from the write-up how stop-loss and take-profit levels are being established. The chart doesn't really help.

"Set stop-loss directly at the indicator level — above the price for Short positions and below the price for Long positions. Adjust stop-loss with each new bar.

Take-profit should be set to the same value as stop-loss, but you should not adjust it."

My understanding is that "indicator level" refers to the dot from the previous bar, the one before it changed direction. This is always to the left of the current bar. Impossible to set a s/l at this level and still be valid for the trade, as the indicator will always be above the buy point, or below the sell point.

Take-profit explanation is even more vague. T/P should be set to the same level as s/l?? You mean the same number of pips in the opposite direction?? I'm not surprised I'm the first one commenting on this since most people probably just give up and move on to something that makes sense.
 

Enivid

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Nov 30, 2008
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Odessa
www.earnforex.com
My understanding is that "indicator level" refers to the dot from the previous bar, the one before it changed direction. This is always to the left of the current bar. Impossible to set a s/l at this level and still be valid for the trade, as the indicator will always be above the buy point, or below the sell point.
Have you seen Parabolic SAR? The example trade below just demonstrates what you call "impossible" - the short trade is below the PSAR dot and its SL is set to the dot's level:

parabolic-sar-trade.png

Take-profit explanation is even more vague. T/P should be set to the same level as s/l?? You mean the same number of pips in the opposite direction?? I'm not surprised I'm the first one commenting on this since most people probably just give up and move on to something that makes sense.
Not "the same level" but "the same value". If SL value is 54 pips (like in above example), the TP value should also be 54 pips.
 
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clemmo

Trader
Aug 5, 2016
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Thank you that clarifies things a lot. So the stop loss moves with the PSAR dot. I thought it was moving with the top or bottom range of each bar.

Main site seems to be down or I would take another look at the original chart and see how I got confused. I knew that PSAR repaints the dot on a trend change and so I wasn't sure how you would calculate the last stop placement, but if you simply placed it at the beginning of the candle formation that would work well, I think.

This strategy has potential. I like the simplicity. If you added another rule to the stop loss to avoid situations where a substantial gain is retraced all the way to a loss it would not be as risky, maybe? Maybe using ADX to avoid ranging situations where the SAR gets confused.

I am going to test it on a 4H gold chart. Do you use this strategy in your trading or would you recommend it?
 

Enivid

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I would not recommend using it in its pure form on real account. Demo-testing it and adjusting it according to the chosen currency pair and timeframe would probably work. Especially, if you are going to trade it on H4 timeframe where you will get influenced by fundamental events.