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Parabolic SAR

The Parabolic Time/Price System or better known as the Parabolic SAR is an entry and exit system created by J.Wells Wilder. SAR = “Stop and Reverse” .

It combines price and time components to generate your spread betting long or short signals. The Parabolic SAR adapts to the change. It is also an effective tool to determine where to place your stop loss.

Long Spread Trading Signal

When to take a long spreadbetting strategy? When the candle finishes above the Parabolic SAR and the Parabolic SAR indicator changes from being above the price to being below the price. The Parabolic SAR indicator was used as a stop and reversal trading strategy, where you would not close your position but would turn it around from a long to a short trading. The Parabolic SAR Indicator can be applied to Forex, stocks, indices,

Short Spread Trading Signal

Opposite to your long trading strategy, When the candle finishes below the Parabolic SAR and the Parabolic SAR indicator changes from being below the price to being above the price, this is the signal to go spreadbet short.

Now the next page will show you how the Parabolic SAR is extremely useful for knowing where to place your stop loss.

Next: Parabolic SAR Stop loss

Parabolic SAR Stop loss

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.

Spread Trading with the MACD Histogram

The MACD Histogram is very good strength indicator / momentum indicator. The Histogram is constructed by the difference between the Fast MACD line (green Line) and the slower MACD Signal Line (blue Line).

The moment the faster MACD Line moves faster that the the MACD Signal Line, this creates a bigger gap between the two and the Histogram increases as it measures the difference between the tow. Therefore if a stock is having short term strength relative to it’s previous trend the histogram will in increase. If the trend in the short term has changed and the gap narrows the histogram will decrease.

A spread betting strategy is to trade this change of direction or strength, is to:

Spread bet Long:

When the histogram has been in a downtrend and now starts flattening and changing direction to the upside.

Spread bet Short:

when the histogram has been in an uptrend and now starts flattening and changing direction to the downside.

what you are doing is that you are capturing the momentum trade.

Next: Spread Betting the MACD Convergence Divergence

Previous: Spread Trading the MACD Moving Average

Trading the Commodity Channel Index (CCI)

Reversal Strategy

Many use the CCI as an oscillator, as it comprises of 75% of the prices within -100 and +100:

Spread bet Sell signal: when the channel crosses above the +100 and then falls back below the +100 line.

Spread bet Buy signal: when the channel crosses above the +100 and then falls back below the +100 line.

Trend Following Strategy

The CCI Channels can also indicate when a trend is starting:

Uptrend: When the CCI is above +100 and stays there this indicates a trend is underway. Often this is used with other indicators as a confirming tool. You can use a 3 EMA with the CCI Channels. As you can see from the example above.

Downtrend: When the CCI is above +100 and stays there this indicates a trend is underway. Often this is used with other indicators as a confirming tool. You can use a 3 EMA with the CCI Channels.

Previous Page:The Commodity Channel Index (CCI)