Parabolic SAR

(Stop and Reverse system)

◙ Primary Use: Evaluating Trends and Reversals

◙ Trading with Parabolic SAR: Catching a trend reversal and following it using a trailing stop

◙ Typical Settings: Acceleration Factor = 2% (0.02), Maximum Step = 20% (0.2)

Introduction to the Parabolic SAR

The Parabolic SAR is a technical indicator used to identify potential trend reversals in the market. It places dots above or below price candles, indicating when a trend may be losing momentum or reversing direction.

• Most effective in strongly trending markets.

• Trending conditions exist approximately 30% of the time, based on historical data.

• Best results are achieved when combined with other indicators—commonly used with the ADX (Average Directional Index) for trend confirmation.

Calculating the Parabolic SAR

Formulas:

• Rising SAR: SAR = Previous SAR + AF × (EP − Previous SAR)

• Falling SAR: SAR = Previous SAR − AF × (Previous SAR − EP)

Where:

• AF (Acceleration Factor): Controls the sensitivity of the SAR, typically starting at 0.02 and increasing with the trend, up to a max of 0.2.

• EP (Extreme Point): The highest high (in an uptrend) or lowest low (in a downtrend).

• Previous SAR: The SAR value from the previous period.

 Trading with the Parabolic SAR

The Parabolic SAR is primarily used to track and ride trends, functioning like a dynamic trailing stop.

Use it to:

1. Identify and follow the dominant trend

2. Spot potential price reversals

3. Determine entry and exit points

4. Set trailing stop-loss levels effectively

Platform Setup

To add the Parabolic SAR:

1. Navigate to: INDICATORS → TREND → PARABOLIC SAR

2. Configure settings: Step: 2% (0.02) | Maximum: 20% (0.2)

■ What is the Parabolic SAR

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