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What is psar in forex?

Forex trading is an exciting way to invest in the global financial market. It is a platform where you can buy and sell currencies from different parts of the world. The goal is to make a profit by buying low and selling high. However, forex trading requires a lot of knowledge, skill, and experience to be successful. One of the tools that forex traders use to make informed trading decisions is the Parabolic SAR (PSAR). In this article, we will explain what PSAR is and how it works.

Parabolic SAR (PSAR) is a technical indicator used in forex trading to determine the direction of the market trend. It is a simple indicator that appears as a series of dots on a price chart. The dots are placed above or below the price bars, depending on the direction of the trend. When the dots are above the price bars, it indicates a downtrend, and when the dots are below the price bars, it indicates an uptrend.

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The PSAR was developed by J. Welles Wilder Jr. in 1976, and it has since become a popular tool among forex traders. The indicator is based on the principle that the price of an asset will continue to move in the direction of the trend until it reaches a point of exhaustion. The PSAR helps traders to identify this point of exhaustion and make informed trading decisions.

The PSAR is calculated using a formula that takes into account the price and time. The calculation involves two variables: the acceleration factor (AF) and the extreme point (EP). The AF starts at 0.02 and increases by 0.02 each time the EP is updated. The EP is the highest high or the lowest low of the current trend. The PSAR calculation is as follows:

– When the trend is up, the PSAR is calculated by subtracting the AF multiplied by the difference between the EP and the previous PSAR from the previous PSAR.
– When the trend is down, the PSAR is calculated by adding the AF multiplied by the difference between the EP and the previous PSAR to the previous PSAR.

The PSAR is a useful tool for forex traders because it helps them to identify the direction of the trend, the point of entry and exit, and the level of risk. When the dots are above the price bars, it indicates a downtrend, and traders should look for opportunities to sell or short the asset. When the dots are below the price bars, it indicates an uptrend, and traders should look for opportunities to buy or long the asset.

Traders can also use the PSAR to set stop-loss orders. A stop-loss order is an order placed to close a trade when the price of the asset reaches a certain level, thus limiting the trader’s losses. When the trend is up, traders can set their stop-loss order below the PSAR, and when the trend is down, traders can set their stop-loss order above the PSAR.

However, traders should be cautious when using the PSAR because it is a lagging indicator. This means that it may not provide accurate signals in a fast-moving market. In addition, the PSAR should be used in conjunction with other technical indicators and fundamental analysis to make informed trading decisions.

In conclusion, the Parabolic SAR (PSAR) is a technical indicator used in forex trading to determine the direction of the market trend. It is a simple indicator that appears as a series of dots on a price chart. The PSAR helps traders to identify the point of exhaustion of a trend and make informed trading decisions. However, traders should be cautious when using the PSAR and should use it in conjunction with other technical indicators and fundamental analysis to make informed trading decisions.

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