Hello. Welcome to Campus Charts Master Class. I'm Sandy Jadeja, Chief Market Strategist for CMS FX.

Welcome back to another lesson in technical analysis. As always, this is simply for information and educational purposes only.

Today we're going to talk about the parabolic SAR. That's quite a mouthful that technical term there, but you'll that actually it's a very, very useful tool in our toolbox of technical analysis.

So what exactly is a parabolic SAR? Well, the parabolic SAR is referred to as the 'stop and reverse', and that's what the SAR stands for. It's actually quite useful for selling stops, and it can be used as a trend indicator, although that's not what it's actually created for.

It is quite a complex calculation, in terms of how it's actually put together. So I won't go into full details of this. But I will show you the actual application of using this particular indicator.

Have a look at this particular chart over here. Straight away we can see that there are a series of blue dots on the chart. And that is actually the parabolic SAR. Over here, we see the blue dots above the market. And just over here we see the blue dots below the market. And as you progress through the time period, we can see at several instances that the parabolic SAR is above, sometimes below, and sometimes above the market.

So what exactly does this do then? Well, let's just zoom in. Over here we have the dots on the upper side of the market. And what this is telling us is that the actual trend should be to the downside.

Notice over here in this green box we see a reversal right at this bar over here, where we've got a blue arrow.

What that is telling us actually is that the market moved above the blue dots on the upper side. It then created blue dots on the lower side of the market. So at this particular point in time, we would want to be long. So we would stop our position out, and we would reverse this. So instead of being short, we would now be long. And our stops would be placed where these blue dots are. So actually these blue dots actually act as a trailing stop loss.

So in this particular example here, once we have the long position, we want to remain long until the market catches up with the blue dot, and then reverses.

In this next slide example, we can see the daily chart. Now, as I've always taught you, you want to look two timeframes. You want to look at the dominant timeframe and the shorter term timeframe. So the previous example has been a weekly chart. And this example here is the same market, but it's actually the daily chart.

Now what I would suggest you do here is to examine this chart and you will notice that there are several instances where the parabolic SAR is above the market and below. So the weekly trend is telling us that we should be long, then we would ignore every single sell signal on the daily chart and only take the long signals. And, of course, towards the end of this particular chart here, we had very nice move in this market. And again, like some of the trend indicators, the parabolic SAR is very, very good when we have a nice long-term trend towards the upside, or even towards the downside.

Here on this example, I'm showing you a combination of two techniques. So we've previously discussed in our journey of technical analysis moving averages. And we have a simple 20-period moving average, as indicated by the green line.

Now, towards the left-hand side of the chart, where we have a parabolic and a moving average cross, we notice by the blue arrow that straight away the market had cleared above the blue parabolic dot. And that would indicate we would now initiate the long position.

The market also is now trading above its 20-period moving average. So there's two indications that the market should trend toward the upside. And, of course, the market rolls quite nicely towards the upside for several months, until we get stopped out by the parabolic SAR towards the right-hand side of the chart.

Now here also, if the longer term trend is up, only take the long signals. If the longer term trend is down, only take sell signals.

So combining two techniques can result in some very, very good moves.

So, trading with a parabolic SAR, we want to wait for a parabolic SAR indication. In other words, if the dot has already started, you might want to wait for the next dot to occur before initiating a position.

Then of course look at the large degree timeframe. So combine the weeklies with the dailies. Only if you're trading shorter term, you might want to combine the dailies with the hourly chart. And of course the hourly with the 15-minute chart.

Then, of course, enter and exit on the lower degree timeframe. So that's where you would be initiating your positions. And the longer term would initiate the trend itself. N And then it's possible to combine the parabolic SAR with other methods, and we will be looking at several methods and several technical tools in our journey of technical analysis.

So the conclusion is that the parabolic SAR is useful for utilising stock placements, but it can also be used to identify trends reversals.

In the next lesson we'll take a look at trading with the MACD, which is a very popular indicator. In the meantime, have a great trading week. This has been Sandy Jadeja at CantosCharts Master Class. Have a great trading week.