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VIDEO NOTES

A lesson on how to trade the Parabolic Stop and Reversal (SAR) indicator for traders of the forex, futures, and stock markets.

In our last lesson we learned about the Average Directional Index (ADX) an indicator which helps traders determine the strength of trends in the market. In today's lesson we are going to look at another indicator called the Parabolic Stop and Reversal (Parabolic SAR), which helps traders enter and manage positions when trading those trends.

The Parabolic SAR is an indicator that, like Bollinger bands is plotted on price, the general idea of which is to buy into up trends when the indicator is below price, and sell into downtrends when the indicator is above price. Once traders are in positions the indicator also assists in managing the position by providing guidance as to how one should trail their stop.

While this is an indicator that works very well in trending markets, as you can see from the below chart simply following the basic be long when the indicator is below price and be short when the indicator is above price will lead to many whipsaws in range bound markets.

To combat this problem the developer of the indicator J. Welles Wilder (who also developed the RSI and ADX) recommended establishing the strength and direction of the trend first through the use of things such as the ADX, and then using the Parabolic SAR to trade that trend. As mentioned above although the Parabolic SAR is used for both entering and managing positions, it is used far more to set stops once in a position.

As with the other indicators we have covered in past lessons it is recommended to use this indicator in conjunction with other methods of analysis for confirmation not only on trade entry but also on trade exit.

That's our lesson for today. While my lessons are by no means exhaustive on the subject this also concludes my series on technical indicators. If you are interested in learning more about the indicators that we have studies as well as some of the other indicators that traders use, I encourage you to visit the technical indicators section of informedtrades.com. In our next lesson we will finish up our series on technical analysis by taking a deeper look at candlestick chart patterns and how one can use these in their trading.

As always I encourage you to participate in the community by posting your comments and questions below, and have a great day!

1. Intro to Technical Analysis
2. Introduction to Dow Theory
3. Second 3 Tenets of Dow Theory
4. How to Read Stock Charts
5. How to Trade Support and Resistance
6. Multi Time Frame Analysis
7. Introduction to the Double Top and Double Bottom Charting Pattern
8. How to Trade Double Tops Like a Pro
9. How to Trade the Head and Shoulders Pattern Part 1
10. How to Trade the Head and Shoulders Pattern Part 2
11. How to Trade the Wedge Chart Pattern Like a Pro Part 1
12. How to Trade the Wedge Chart Pattern Like a Pro Part 2
13. How to Trade the Flag/Pennant Patterns Like a Pro Part 1
14. How to Trade the Flag/Pennant Patterns Like a Pro Part 2
15. How to Trade Triangle Chart Patterns Like a Pro Part 1
16. How to Trade Triangle Chart Patterns Like a Pro Part 2
17. Learn to Trade with Technical Indicators
18. How to Trade Moving Averages Like a Pro (Part 1)
19. How toTrade Moving Averages Like a Pro (Part 2)
20. How to Trade the MACD Indicator Like a Pro (Part 1)
21. MACD Indicator: Trade it Like a Pro (Part 2)
22. How to Trade the Relative Strength Index (RSI) Like a Pro
23. How to Trade Stochastics Like the Pro's Do
24. The Difference Between the Fast, Slow and Full Stochastic
25. How to Trade Bollinger Bands - Stocks, Futures, Forex
26. How to Trade the Average Directional Index (ADX)
27. How to Trade the Parabolic SAR
28. How to Trade Candlestick Chart Formations Part 1
29. How to Trade Spinning Tops and Doji Candlestick Patterns
30. How to Trade the Bullish/Bearish Engulfing Candlesticks
31. How to Trade the Hammer Hanging Man Candlesticks
32. How to Trade the Morning/Evening Star Candlestick Pattern
33. How to Trade the Inverted Hammer/Shooting Star Patterns
34. Why Most Traders Lose Money and The Solution
35. Why Traders Hold On to Losing Positions
36. Two Trading Mistakes Which Will Destroy Your Account
37. Herd Mentality is the Psychology That Leads to Big Trading Losses
38. Profit Expectations: What Millionaire Traders Know
39. How to Join the Minority of Traders Who Are Successful
40. How To Determine Where to Put Your Initial Stop Loss Order
41. How to Use the Average True Range (ATR) To Set Stops
42. How to Up Your Chances for Profit When Setting Stops
43. How to Reduce the Chances of Being Stopped Out on a Trade
44. How Successful Traders Use Indicators to Place Stops
45. Stop Your Mind From Causing You to Take Profits Too Soon
46. How To Use Trailing Stops
47. Why Position Sizing is So Important in Trading
48. Why Fixed Position Sizing Is Not the Best Way to Trade
49. Trading The Martingale and Anti Martingale Strategies
50. How to Set Trade Position Size for Maximum Profits
51. Maximize Trading Profits with Correct Position Sizing 2
52. Fundamental Analysis and The US Economy
53. A Simple Explanation of the US Economy for Traders
54. Simple Explanation of The US Economy For Traders Part 2
55. The Business Cycle and Fiscal Policy - What Traders Know
56. How Interest Rates Move Markets
57. What Traders Know About Interest Rates Part 2
58. What Traders Need to Know About The Structure of The Fed
59. How the Fed Changes Interest Rates
60. How to Determine When the Fed is Going to Change Rates
61. Why Markets Move Ahead of Interest Rate Announcements
62. How to Trade the GDP Number (Part 1)
63. The Components of the Gross Domestic Product (GDP)
64. Intro to Trading Non Farm Payrolls (NFP's)
65. Trading the News - Economic Numbers - Retail Sales
66. Trading the News - Economic Numbers - ISM Manufacturing
67. The Producer Price Index (PPI)
68. The Consumer Price Index (CPI)
69. Trade the News - Existing Home Sales Index
70. How To Interpret the Consumer Confidence Index (CCI)
71. How to Interpret the Index of Leading Economic Indicators
72. The Advantages and Disadvantages of Day Trading
73. The Advantages and Disadvantages of Swing Trading
74. The Advantages and Disadvantages of Position Trading
75. How to Keep a Trading Journal
76. The Most Important Attributes of a Good Trading Journal
77. The 20 Components of a Successful Trading Plan

This is a series of 77 short video lessons meant to give traders an introduction to the basics of trading as well as the components necessary to develop a profitable trading plan.