Today We’re going to talk about What Is Parabolic Stop And Reversal? we had mentioned will calculation. Hope this will help you in making your trading experience better.
What Is Parabolic Stop And Reversal?
Traders use parabolic SAR to find the change in the direction of price. The SAR in Word Parabolic SAR known as “Stop and Reversal”. It’s a non-repair and lagging indicator.
The parabolic SAR is a technical indicator used to determine the price direction of an asset, as well as draw attention to when the price direction is changing. Sometimes known as the “stop and reversal system,” the parabolic SAR was developed by J. Welles Wilder Jr., creator of the relative strength index (RSI)
the indicator appears as a series of dots placed either above or below the price bars. A dot below the price is deemed to be a bullish signal. Conversely, a dot above the price is used to illustrate that the bears are in control and that the momentum is likely to remain downward. When the dots flip, it indicates that a potential change in price direction is under way. For example, if the dots are above the price, when they flip below the price, it could signal a further rise in price.
Calculation
Rising SAR = Prior SAR + Prior AF (Prior HP- Prior SAR)
Falling SAR = Prior SAR – Prior AF (Prior SAR – Prior
LP)
Where AF stands for acceleration factor, which has a default of 0.02 and increases by 0.02 each time a new high price is achieved in the current trend. This has a maximum of 0.20.
HP stands for high point, which is the highest high in
a current uptrend. LP stands for low point, which is the lowest low in at current downtrend.
Indicators to Complement to the Parabolic SAR
- In trading, it is better to have several indicators confirm a certain signal than to rely solely on one specific indicator. Complement the SAR trading signals by using other indicators such as a stochastic, moving average, or the ADX.
- For example, SAR sell signals are much more convincing when the price is trading below a long-term moving average. The price below a long-term moving average suggests that the sellers are in control of the direction and that the recent SAR sell signal could be the beginning of another wave lower.
Similarly, if the price is above the moving average, focus on taking the buy signals (dots move from above to below). The SAR indicator can still be used as a stop-loss, but since the longer-term trend is up, it is not wise to take short positions.
