Parabolic SAR, also known as Stop and Reverse, is a technical analysis indicator that traders use to identify potential trend reversals in the market
This post may contain affiliate links, which means that I may earn a commission if you click on the link & sign-up or make a purchase. You will NOT be charged extra for using the link, but it goes a long way in supporting this blog. I only recommend products or services that I have personally used or believe will add value to my readers.
Parabolic SAR, also known as Stop and Reverse, is a technical analysis indicator that traders use to identify potential trend reversals in the market. The indicator was developed by J. Welles Wilder Jr., who also developed other popular indicators such as the Relative Strength Index (RSI) and Average True Range (ATR).
Introduction
The Parabolic SAR indicator is a popular tool used by traders to determine market trends and to generate signals for entry and exit points. The Parabolic SAR indicator is designed to help traders identify the direction of the trend and the momentum of the market. In this article, we will discuss how Parabolic SAR works, how to use it for trading, and the advantages and disadvantages of using Parabolic SAR.
Explanation of Parabolic SAR Indicator
The Parabolic SAR indicator is a technical analysis tool that uses dots to indicate potential changes in the direction of the market. The dots appear above or below the price on the chart, depending on the trend. When the dots are below the price, it is a bullish signal, and when the dots are above the price, it is a bearish signal. The Parabolic SAR indicator is used to set trailing stop-loss orders or to enter or exit the market.
Importance of Parabolic SAR Indicator in Trading
The Parabolic SAR indicator is essential in trading as it helps traders to identify trends and make informed trading decisions. Traders use the Parabolic SAR to determine the direction of the trend and to generate buy or sell signals. The Parabolic SAR indicator is easy to use and can be incorporated into any trading strategy.
Download the forex robot featured in the video HERE.
How Parabolic SAR Works
The Parabolic SAR indicator is based on the price and time of the market. The indicator uses an algorithm that sets dots above or below the price on the chart, depending on the trend. The dots move in relation to the price, creating a trailing stop loss.
Calculation of Parabolic SAR
The Parabolic SAR indicator is calculated using the following formula:
SARn+1 = SARn + AF * (EP – SARn)
Where:
- SARn+1 is the next period’s SAR value.
- SARn is the current period’s SAR value.
- AF is the acceleration factor.
- EP is the extreme price.
Interpreting Parabolic SAR
When the dots are below the price, it indicates an uptrend, and when the dots are above the price, it indicates a downtrend. The Parabolic SAR is used to set trailing stop-loss orders and to enter or exit the market.
COMMENTS