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What is Parabolic SAR?

An Introduction to the Parabolic SAR

Parabolic SAR is Developed by Welles Wilder, its Price base and time base trading method. SAR is stands for Stop & Reverse trading system. SAR trails price as the trend extends time the indicator stops and reverses when the price trend reverses and breaks above or below the indicator. This indicator mainly used by Trader for short term trading or intraday trading. It’s very easy to learn and use.

This system created this way that you are always in trade and with the trend. So who love to code his strategy is very much happy with this type of indicator. Who believe always in market for make money this indicator for them?

Parabolic SAR Indicator

This system of Parabolic SAR indicator works in any chart type but for best use you can apply on candle stick chart type. On chart its looks like dots places above or below of price action or chart type. If dots below the chart type or price its indicated upward trends and if dot above price or chart type then its indicator downward trend. Many people love to see green dots when price is going up and red dots when price is going down. You can code that also in this Parabolic SAR indicator.

Parabolic SAR Best Time Frame

Image of Parabolic SAR Best Time Frame

Here, very interesting topic is SL as its always in trend indicator means your SL should be dynamic. Its trailing base SL indicator. As once ur SL hit its also indicated reversal signal too. As successful traders say Trend is best friend of Trader.  Parabolic SAR works best in trending market. In range bound market parabolic SAR gives you false signal but you can be avoid with ADX indicator. To learn more about ADX click here. Coder may code his strategy with combine PARABOLIC SAR with ADX (average directional index).

Parabolic SAR – Formula

PreviousSAR=TheSARvalueforthepreviousperiod.

ExtremePoint (EP) =Thehighesthighofthecurrentuptrend

priceorthelowestlowofthecurrentdowntrend price.

 

AccelerationFactor(AF)=DeterminesthesensitivityoftheSAR.

AFstartsat.02andincreases upby.02everytimetheEPrisesinaRisingSARorEPfallsinaFallingSAR.

 

ThecalculationsforRisingParabolicSARandFallingParabolicSARaredifferentsotheywillbeseparated.

 

RisingParabolicSAR

PreviousSAR+PreviousAF (PreviousEP-PreviousSAR) =CurrentSAR

 

FallingParabolicSAR

PreviousSAR-PreviousAF (PreviousSAR-PreviousEP) =CurrentSAR

Start

The starting value for the Acceleration Factor (.02 is the Default).

Increment

The increment in which the Acceleration Factor will move (.02 is Default).

Max Value

The maximum value of the Acceleration Factor (.20 is the Default)

How to use Parabolic SAR effectively?

  1. Zerodha Kite

  • Open Zerodha Kite Lending Page
  • Enter Symbol and Click
  • Click Launch Chart Icon
  • Go to Studies tab , Search Parabolic SAR
  • Go with Default settings or change as per your working

Image of How to use Parabolic SAR?

  1. Streak By Zerodha

  • Open Streak website , Login with your kite id and password
  • Go to Create Tab, Add script and select time frame
  • Select Strategy for Buy or Sell and Add Quantity
  • For Buy – Buy signal to identify a bullish trend, PSAR crosses below Low
  • For Sell – Sell signal to identify a bearish trend, PSAR crosses above High
  • Backtests and Run Algo
  1. Parabolic SAR with Amibroker

  • Open Amibroker Software
  • Go to Code Builder section
  • Copy and Paste this code under it and save
  • Use Parabolic SAR strategy in any trading script or indices.

Pros:

  • Parabolic SAR works best with Trending Market and script or indices
  • Always with Market Trend with this indicator
  • SAR designed for Trader to follow market Trend and Trade
  • Great Indicator for Trader who wants to Code their strategy.
  • Best result with ADx Indicator and
  • Best Strategy with Money management tool

Cons:

  • Not work with Rangebound market or low volume securities.
  • Rangeboundmarket give you more than 50% false trade.

Also Read:

What is Supertrend Indicator? How to Use It

Which Indicators are the best for Intraday Trading?

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