When a trend reversal occurs, the Parabolic SAR provides four signals:

1. If it crosses the price and forms three consecutive decreasing dots above the candlestick, it signals a bearish reversal.

2. If the price crosses below and forms three consecutive increasing dots below the candlestick, it indicates a bullish reversal.

3. If the price surpasses the Parabolic SAR, implying a buying price above the SAR and a selling price below the SAR.

4. If the price crosses the Parabolic SAR again, it suggests the need to stop and reverse your position.

The Parabolic SAR is an effective tool for determining entry points, letting you close a buy position when it reverses above the price, and close a sell position when it reverses below the price. This approach ensures order retention in the direction of price movement as per the Parabolic SAR.

The Parabolic SAR also offers a framework for implementing trailing stops. In an uptrend, for instance, it will ascend with the rising price, progressively moving the stop-loss order from one point to the next. This feature aids in risk limitation and profit lock-in based on a trader's assessment.

Conclusion

The Parabolic SAR is a unique and powerful indicator, demonstrating efficient functionality in both uptrend and downtrend markets.

However, it may deliver false signals in sideways markets. Hence, it is advisable to pair the Parabolic SAR with other technical indicators for enhanced accuracy.

For instance, when the Average Directional Index (ADX) confirms a strong trend, using the Parabolic SAR alongside the ADX could increase its effectiveness and precision.

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