Parabolic SAR Technical Indicator

The speaker covers the technical indicator known as the parabolic SAR.  Similar to the bollinger bands, this indicator is plotted over the price, rather than below it.  The parabolic SAR works well in trending market rather than rangebound ones.  When the indicator is below price, a buy signal is generated with a trailing stop or a stop loss order of some sort.  Conversely, when the indicator is above price, a sell signal is issued.

It is important to note that a trader needs to understand if the market is trending or in a range before applying this indicator.  The parabolic SAR, used with the RSI and the ADX can provide powerful signals.  For example, an ADX reading above 20 and a cross above 50 on the RSI coupled with a price breakout from a longer term rangebound market can signal a buy point.  The parabolic SAR is ideal in this situation as you can use it to place your stop orders as the stock continues to move higher.