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How to Use Parabolic SAR?

2 min read

The parabolic SAR, or parabolic stop and reverse, may be a popular indicator that is mainly employed by traders to work out the longer term short-term momentum of a given asset. The indicator was developed by the famous technician J. Welles Wilder, Jr. and can easily be applied to a trading strategy, enabling a trader to work out where stop orders should be placed.

The parabolic SAR indicator is graphically shown on the chart of an asset as a series of dots placed either over or below the worth (depending on the asset’s momentum). A small dot is placed below the worth when the trend of the asset is upward, while a dot is placed above the worth when the trend is downward. Transaction signals are generated when the position of the dots reverses direction and is placed on the other side of the worth.

The Parabolic SAR (PSAR) indicator uses the foremost recent extreme price (EP) along side an acceleration factor (AF) to work out where the indicator dots will appear. The Parabolic SAR is calculated as follows: Uptrend: PSAR = Prior PSAR + Prior AF (Prior EP – Prior PSAR)

Parabolic SAR was originally named Parabolic Time/Price System with SAR an acronym for stop and reverse. Technical analysts often call the indicator as simply SAR or PSAR.

It finds the potential reversals in the price of traded assets such as securities, currency & commodities and can be used to provide the entry and exit points.

One of the foremost interesting aspects of this indicator is that it assumes that the trader is fully invested during a position in the least point in time. For this reason, it is of specific interest to those who develop trading systems and traders who wish to always have money at work in the market.

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