what does the parabolic sar indicator tell you 
the parabolic indicator generates buy or sell signals when the position of the dots moves from one side of the asset s price to the other for example a buy signal occurs when the dots move from above the price to below the price while a sell signal occurs when the dots move from below the price to above the price traders also use the psar dots to set trailing stop loss orders for example if the price is rising and the psar is also rising the psar can be used as a possible exit if long if the price drops below the psar exit the long trade the psar moves regardless of whether the price moves this means that if the price is rising initially but then moves sideways the psar will keep rising despite the sideways movement in price a reversal signal will be generated at some point even if the price hasn t dropped the psar only needs to catch up to price to generate a reversal signal for this reason a reversal signal on the indicator doesn t necessarily mean the price is reversing the parabolic indicator generates a new signal each time it moves to the opposite side of an asset s price this ensures a position in the market always which makes the indicator appealing to active traders the indicator works most effectively in trending markets where large price moves allow traders to capture significant gains when a security s price is range bound the indicator will constantly be reversing resulting in multiple low profit or losing trades for best results traders should use the parabolic indicator with other technical indicators that indicate whether a market is trending or not such as the average directional index adx a moving average ma or a trendline for example traders might confirm a psar buy signal with an adx reading above 30 and a bounce for a long term rising trendline the parabolic sar vs a moving average ma the psar and mas both track the price and help show the trend but they do it using different formulas an ma takes the average price over a selected number of periods and then plots it on the chart the psar looks at extreme highs and lows and then applies an acceleration factor these varying formulas look very different on the chart and will provide different analytical insights and trade signals limitations of using the parabolic sar indicatorthe parabolic sar is always on and constantly generating signals whether there is a quality trend or not therefore many signals may be of poor quality because no significant trend is present or develops following a signal reversal signals are also generated eventually regardless of whether the price actually reverses this is because a reversal is generated when the sar catches up to the price due to the acceleration factor in the formula 2 therefore a reversal signal may get a trader out of a trade even though the price hasn t technically reversed investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal 