Parabolic SAR Strategy For Catching Trends – Awesome!
My search for a parabolic SAR strategy is over, now that I have found this one. It seems to work really well so far, but be warned, even the original author of the Parabolic SAR indicator (Welles.J.Wilder) suggested that it should only be used in trending markets. For this reason I think adding Renko candles to the chart will help filter out the noise, and intraday swings.
If you would like to download the whole chart set up for Metatrader, the full Parabolic SAR strategy , plus the Renko bar indicator and guide to set this up. Please like the page below and it will all unlock.
Things That Go Wrong With A Parabolic SAR Strategy
For those new to Parabolic SAR, it was created by Welles Wilder, who famously created the Relative Strength Index indicator. The basic strategy of using the SAR is to buy when the dots are below the price, and sell when the dots are above. For this reason it looks good on a chart, after a move has happened. But it is often subject to “repainting” if viewing it in real time, due to dots being “painted”, then as price moves back again the dots disappear. Thus is only really effective during trending moves.
It seems to be the main reason why people don’t like the Parabolic SAR for trading.
But what if you could filter out the noise and whipsaws?
It could be a powerful strategy.
This is what led me to research Renko candles in combination with the SAR. Renko candles do not rely on time, they only plot on the chart when price moves beyond a set “box” range.
For instance, let’s say you have your “box” set at 10 pips. Unless the price moves beyond 10 pips of the previous candle open, the price will stay static. Even if a few hours pass by, a new candle will not be printed.
There are some great strategies for using Renko candles to determine range break outs, but could it also be used to determine trending moves, with confirmation by Parabolic SAR?
I thought I would try and see. The results looked great on a chart.
I began to dig around further on this idea, and came across a thread on ForexFactory that used a similar idea (kudos guys), of Renko candles and Parabolic SAR, but also adding Heiken Ashi candles over the Renko bars.
This looked extremely good on a chart. See below.
However, many trading system and indicators can look great on a chart, but in real trading they perform terribly. I started to look at when the idea would fail and when it would work based on these charts.
I found that after a change in direction of the Heiken Ashi color, and Parabolic SAR change, often there could be a “false break”. I guess many would call it a pull back in the trend, before continuation.
If you take the idea of not jumping in immediately on the trend change, but watching for the pull back, then a 2nd directional push the move looks to produce enough pips to get a strategy going.
I’m going to monitor this one closely, and forward test it on a demo account to see how it performs. But initial watching over a few days seems good.
If you would like to download the whole chart set up for Metatrader, the full Parabolic SAR strategy , plus the Renko bar indicator and guide to set this up. Please share the page below and it will all unlock.