Parabolic SAR
Related links:
Acceleration / Deceleration Oscillator | Moving Average Convergence / Divergence Parabolic SAR |
Parabolic SAR
Parabolic SAR technical indicator has common characteristics with the moving average indicator, except for it moves with a greater acceleration and changes its position in terms of the price.The indicator is applied directly on the price graph and is situated below the prices on the bull market (Up Trend) and above them on the bear market (Down Trend).If the price crosses indicator's lines Parabolic SAR changes its direction. In this case indicator values will be situated on the other side of the price while 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.
It is possible to define exit points with great precision using this indicator. 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:
For long positions:SAR (i) = ACCELERATION * (HIGH (i - 1) - SAR (i - 1)) + SAR (i - 1)
For short positions:
SAR (i) = ACCELERATION * (LOW (i - 1) - SAR (i - 1)) - SAR (i - 1)
Where:
SAR (i - 1) - Parabolic SAR indicator value in the preceding bar;
ACCELERATION - acceleration factor;
HIGH (i - 1) - previous period maximum price;
LOW (i - 1) - previous period minimum price.
The value of the indicator increases if the price of the current bar is higher than that of the previous one on bull market 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.
Similar information about indicators you can find in information system of trade platform MetaTrader 4 (Help-> Help Topics [F1] -> Ananlitics -> Technical Indicators).
