What is the Parabolic Sar indicator ?

Parabolic SAR stands for Parabola for Stop Reversal. It is a trend indicator with minimal lag and is used with almost an timeframe. Has accurate forecasting is the reason behind the popularity of parabolics in Forex. SAR (SAR) is a trend indicator. It shows who is better in the market – bulls or bears and allows you to determine the conditions for a change in trend.

Willis Elder has discovered the Parabolic Sar at the end of the seventies.

First of all, you should know that the word Parabolic means equivalent, which is only a descriptive name only for the indicator that takes the form of an oval.

How is the SAR Parabolic Index calculated?

The parabolic SAR is calculated by using an algorithm with two equations to calculate the parabolic SAR. The first equation is for long positions (uptrend):

PSAR(i) = (HIGH(i-1) – PSAR(i-1)) * AF+PSAR(i-1)

The second equation for short positions (downtrend):

PSAR(i) = (LOW(i-1) – PSAR(i-1)) * AF+PSAR(i-1)

where: 

PSAR is the parabola value. Using the counter (i) indicates the current value, so (i – 1) is the value that precedes the value computed.

HIGH is the highest price.

LOW is the lowest price.

AF is the coefficient of acceleration. Its value increases by a set step for each period in which new maximum price values ​​ are gained. Wilder recommends using an initial parameter of 0.02, which increases by 0.02 with each new column until it reaches a maximum amount of 0.2.

The formula for calculating the acceleration factor AF:

АF = 0.02 + ix*K

where:

ix is ​​the number of periods accumulated since the start of the count;

K is the price change step, whose value by default is 0.02.

Important! The limits of the AF in the LiteForex web platform and the MT4 platform may change. However, the author himself and his closest followers stick to the required value of 0.2 when trading.

How to use the Parabolic SAR indicator and read its signals?

Let’s look at the operation of the Parabolic Sar and its cues in detail:

Determine the direction. If the curve is above the price, the market is in a downtrend. If it is below the price – the trend is up.

In the reverse direction. When the current point appears on the other side (the price cuts with the curve). Buying signal on the parabolic SAR occurs when the parabola is above the price in a downtrend. And the first point is formed at the bottom of the bar. Accordingly, the sell signal will be on the opposite side of the lower points turn into the upper ones.

I also recommend considering the following factors:

The probability of reflection increases as the distance between the points of the parabola decreases.

We can talk about the stability of the movement of the desired direction after the appearance of 3-4 consecutive points on the same side.

Important notes roughly the parabolic SAR indicator:

Then identifying buying and selling areas, traders can also use the Parabolic SAR indicator to determine the general direction of prices.

The SAR Parabolic Indicator is suitable for use on all symbols of currencies, metals, and more.

Like most indicators, it is preferable not to use the Parabolic SAR alone without combining it with other trading indicators or other methods of technical analysis.

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