The 3 Parabolic SAR trading system is a popular strategy that utilizes the Parabolic SAR indicator to identify entry and exit signals. This system is based on three simple rules.
To use the 3 Parabolic SAR trading system, traders must first identify the trend direction using the Parabolic SAR.
Then, they should wait for a pullback in the trend direction and confirm the trend with additional technical indicators, like the RSI or MACD.
Finally, traders can enter the trade when the price resumes its trend direction and the Parabolic SAR is in agreement.
If the trend is bullish, traders should consider buying when the price breaks above the previous high, and the Parabolic SAR is below the price.
Conversely, if the trend is bearish, traders should consider selling when the price breaks below the previous low.
When using the Parabolic SAR indicator in the 3 Parabolic SAR trading system, it’s crucial to understand how to interpret the dots on the chart.
The dots are plotted above or below the price chart, depending on the trend direction. When the price is above the Parabolic SAR, it indicates a bullish trend, and when the price is below the Parabolic SAR, it indicates a bearish trend.
Buy Signal Generation With 3 Parabolic SAR System
In the 3 Parabolic SAR trading system, a buy signal is generated when the price breaks above the previous high, and the Parabolic SAR is below the price. Traders can enter a long position at this point, anticipating that the trend will continue in an upward direction.
Sell Signal Generation With 3 Parabolic SAR System
When the price breaks below the previous low and the Parabolic SAR is above the price, a sell signal is generated in the 1-3 Parabolic SAR trading method. At this moment, traders might start a short position, betting that the trend will continue to move downward.