As we mentioned earlier the Parabolic SAR Technical Indicator can function as an area where to place your stoploss, this is both to protect your wins while the trend increases or to minimize your loss when the trend goes against you.
The Effectiveness of the Parabolic SAR as a stop loss tool:
1) Initial stop loss
As the market turns around the Parabolic SAR indicates where to place your initial stop loss above or below the stock, indices, commodities trading price. This is placed according to your spread betting strategy, as in the spread betting example above.
2) Trailing stop loss
As the stock, indices, commodities trading price moves higher so does the Parabolic SAR, as it is an adaptive indicator that follows the price trend. It has an Acceleration Factor of 0.02, that is, as prices move higher so does the Parabolic SAR. This giving new levels where to put your stop loss.
3) Protective Stop and Time stop
as the prices move against you, you have protected your profits.
We said the Parabolic SAR indicator is also a Time stop, as time goes by and the prices move higher until they stop behaving as they should, the Parabolic SAR moves closer and closer until it changes direction, letting you out of the trade. thus time is a big factor too in the Parabolic SAR indicator.
This is good spread betting tool to add to your spread trading bag of indicators.