When using momentum indicators, most traders focus on the RSI and stochastics indicators, which are more well known. However, along with these indicators, traders can also use the Parabolic SAR indicator which was developed by the creator of the RSI indicator; Welles Wilder. The indicator measures momentum in the market and highlights areas where momentum shows an increased chance of reversing directions.
The indicator is displayed as a series of dots placed either above or below price. The dots are used as a directional signal whereby dots placed below price give a bullish signal indicating that momentum is expected to remain to the upside.
Similarly, dots placed above price give a bearish signal indicating that momentum is expected to remain to the downside. The indicator assumes that a trader is already in a position and the dots represent a trailing stop. As such, the indicator is also known … Read the rest