Is Parabolic SAR a profitable stop loss?

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Hi,

Is Parabolic SAR a profitable stop loss?

Or otherwise, is it a false belief? Does it work at any specific time frame?

Maybe, this question is too general... but well, there's nothing bad in asking!

Thanks! 

 
Jiar:

Hi,

Is Parabolic SAR a profitable stop loss?

Or otherwise, is it a false belief? Does it work at any specific time frame?

Maybe, this question is too general... but well, there's nothing bad in asking!

Thanks! 

In my opinion the answer is NO!

Basically because it was designed to be a trend indicator rather than a stop indicator. As written in the article below: "SAR trails price as the trend extends over time. The indicator is below prices when prices are rising and above prices when prices are falling. In this regard, the indicator stops and reverses when the price trend reverses and breaks above or below the indicator."

I suggest you to read the following topic.

http://stockcharts.com/help/doku.php?id=chart_school:technical_indicators:parabolic_sar

Salu2,

Parabolic SAR - ChartSchool - StockCharts.com
Parabolic SAR - ChartSchool - StockCharts.com
  • stockcharts.com
Developed by Welles Wilder, the Parabolic SAR refers to a price-and-time-based trading system. Wilder called this the "Parabolic Time/Price System." SAR stands for "stop and reverse," which is the actual indicator used in the system. SAR trails price as the trend extends over time. The indicator is below prices when prices are rising and above...
 
Jiar:

Hi,

Is Parabolic SAR a profitable stop loss?

Or otherwise, is it a false belief? Does it work at any specific time frame?

Maybe, this question is too general... but well, there's nothing bad in asking!

Thanks! 

Hello Jiar,

I think you have made a small confusion between stop loss and trailing stop... usually, Parabolic Sar is used as trailling stop measure, and not as a stop loss!

So, if you want to set a stop loss using Parabolic Sar, I also tend to believe it's not a good practice, although it's possible...

Personally I prefer to use volatility-based stops. 

Maximize Profits With Volatility Stops
Maximize Profits With Volatility Stops
  • James Hyerczyk
  • www.investopedia.com
Active traders survive because they use initial stop loss protection as well as trailing stops to break even or to lock in profits. Many traders spend hours perfecting what they consider to be the perfect entry point, but few spend the same amount of time creating a sound exit point. This creates a situation where traders are right about the...
 

Thanks for the answers to you both,

I was meaning Parabolic SAR as a trailing stop. Sorry for my inaccurate words! Anyway, I really do appreciate your response, and the article attached has helped me.

Then what do you think? Can Parabolic SAR be used as a good trend indicator, or as a signal to exit when switches from up to down or vice versa? Is this point of view profitable?

Thanks again, 

 

I think you can use it in (SL - TS - TP) all three. specially in TP to gain the trend extension profit unless break the PSAR in opposite direction.

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