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.
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Most effective in strongly trending markets.
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Trending conditions exist approximately 30% of the time, based on historical data.
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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:
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Rising SAR:
SAR = Previous SAR + AF × (EP − Previous SAR)
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Falling SAR:
SAR = Previous SAR − AF × (Previous SAR − EP)
Where:
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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.
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EP (Extreme Point): The highest high (in an uptrend) or lowest low (in a downtrend).
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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:
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Identify and follow the dominant trend
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Spot potential price reversals
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Determine entry and exit points
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Set trailing stop-loss levels effectively
Platform Setup
To add the Parabolic SAR:
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Navigate to: INDICATORS → TREND → PARABOLIC SAR
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Configure settings: Step: 2% (0.02) | Maximum: 20% (0.2)
■ What is the Parabolic SAR
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