Parabolic SAR Technical Indicator was developed for analyzing the
trending markets. The indicator is constructed on the price chart. This
indicator is similar to the Moving Average Technical Indicator
with the only difference that Parabolic SAR moves with higher
acceleration and may change its position in terms of the price. The
indicator is below the prices on the bull market (Up Trend), when it’s bearish (Down Trend), it is above the prices.
If the price crosses Parabolic SAR lines, the indicator turns, and
its further values are situated on the other side of the price. When
such an indicator turn does take place, the maximum or the minimum
price for the previous period would serve as the starting point. When
the indicator makes a turn, it gives a signal of the trend end
(correction stage or flat), or of its turn.
The Parabolic SAR is an outstanding indicator for providing exit
points. Long positions should be closed when the price sinks below the
SAR line, short positions should be closed when the price rises above
the SAR line. It is often the case that the indicator serves as a
trailing stop line.
If the long position is open (i.e., the price is above the SAR
line), the Parabolic SAR line will go up, regardless of what direction
the prices take. The length of the SAR line movement depends on the
scale of the price movement.
Calculation:
The indicator value increases if the price of the current bar is
higher than previous bullish and vice versa. The acceleration factor
(ACCELERATION) will double at the same time, which would cause
Parabolic SAR and the price to come together. In other words, the
faster the price grows or sinks, the faster the indicator approaches
the price.
Technical Indicators
