When looking at the trend, you want to identify your entry and exit points, and when you have the parabolic SAR, you can use this as your stop loss since the data points are plotted above or below the current trend. Another tool to use this with could be a Keltner Channel, which is similar to the Bollinger Bands, but uses slightly different information.
Trend determination is key whenever you are investing or trading, as this will give you an idea of how you want to invest and when. Using the parabolic SAR is a great way to minimize your risk and gauge when you should begin taking profits off the table if the trend should turn. There are many different momentum indicators out there, so be sure to find the one that fits your needs and use it as a complimentary tool to the parabolic SAR.
The downfall of this tool is that it only follows the trends, and does not give us much more information. You can tune the parabolic SAR to give the data you need with the proper inputs, but it will not tell you momentum or the flow of funds. As with any tool, do not rely solely on it, but rather use it in conjunction with your current set up, such as salt to a dish.
There is no one size fits all input for the indicator, but after you fine tune it, you should be able to find how it fits your needs best. Use it on a demo account, as this is the best way to figure out what you need, without losing your money doing so. All in all, this is a great way to manage risk and confirm ideas you already know. It may not be the end all be all, but it will certainly up your game in the trading and investing world. If you ever get stuck, reach out to an investing community as the people there can help to fine tune your inputs, giving you a greater edge in your trading and investing.
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Nathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
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