Moving averages are a popular technical indicator used in Forex trading to identify trends and potential entry and exit points. One of the most common strategies used with moving averages is the combination of the Parabolic SAR (Stop and Reverse) indicator. However, the question remains: What moving average to use with SAR Forex? In this article, we will explore the different types of moving averages and how to use them effectively with the SAR indicator.
First, let’s start with a brief explanation of the Parabolic SAR indicator. The SAR indicator is a trend-following indicator that uses dots to identify potential reversals in the market. When the dots are below the price, it suggests a bullish trend, and when the dots are above the price, it suggests a bearish trend. The SAR indicator is calculated based on the previous high and low prices, as well as the acceleration factor, which determines how quickly the dots move closer to the price.
Now, let’s move on to the different types of moving averages. There are three main types of moving averages: simple moving average (SMA), exponential moving average (EMA), and weighted moving average (WMA).
The SMA is the most straightforward moving average, calculated by adding up the closing prices over a specific time period and dividing by the number of periods. The SMA gives equal weight to each price point and is often used for longer-term analysis.
The EMA is a more advanced moving average that gives more weight to the most recent prices. The EMA is calculated by giving more weight to the recent prices, and the weight decreases as the prices move further into the past. This makes the EMA more responsive to changes in the market and is often used for short-term analysis.
The WMA is similar to the EMA but gives even more weight to the most recent prices. The WMA is calculated by multiplying each price point by a weight factor, with the most recent prices having the highest weight.
Now that we have a better understanding of the different types of moving averages let’s discuss which moving average to use with the SAR indicator. The most common moving average used with the SAR indicator is the EMA. This is because the EMA is more responsive to changes in the market, which is important when using the SAR indicator to identify potential trend reversals.
When using the EMA with the SAR indicator, traders will typically use a 20-period EMA. This is because the SAR indicator is usually set to a default value of 0.02 for the acceleration factor, which means that the dots will move closer to the price every time a new high or low is formed. The 20-period EMA gives more weight to the most recent prices and can help identify potential trend reversals more quickly.
It’s important to note that while the EMA is the most common moving average used with the SAR indicator, traders may also use the SMA or WMA depending on their trading strategy and preferences. However, it’s important to ensure that the moving average used is compatible with the SAR indicator and provides accurate signals.
In conclusion, the moving average used with the SAR Forex strategy is an essential component of the trading strategy. The EMA is the most common moving average used with the SAR indicator due to its responsiveness to changes in the market. However, traders may also use the SMA or WMA depending on their preferences. It’s important to ensure that the moving average used is compatible with the SAR indicator and provides accurate signals to make informed trading decisions.
