Parabolic SAR – What is, How to Use, Formula & Strategy

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 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 loves to code his strategy is very much happy with this type of indicator. Who believes always in the 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 the chart its looks like dots placed 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 the price or chart type then its indicator downward trend. Many people love to see green dots when the price is going up and red dots when the price is going down. You can code that also in this Parabolic SAR indicator.

Parabolic SAR Best Time Frame

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

Parabolic SAR – Formula

Previous SAR=The SAR value for the previous period.

Extreme Point (EP) = The highest high of the current uptrend

price or the lowest low of the current downtrend price.

 

Acceleration Factor (AF)=Determines the sensitivity of the SAR.

AF start sat.02 and increases up by.02 every time the EP rises in a Rising SAR or EP falls in a Falling SAR.

 

The calculations for Rising Parabolic SAR and Falling Parabolic SAR are different so they will be separated.

 

Rising Parabolic SAR

Previous SAR+Previous AF (Previous EP-Previous SAR) =Current SAR

 

Falling Parabolic SAR

Previous SAR-Previous AF (Previous SAR-Previous EP) =Current SAR

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 Landing 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

2. 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

3. 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 the Rangebound market or low volume securities.
• Rangeboundmarket gives you more than 50% false trade.

Also Read:

What is Supertrend Indicator? How to Use It

Which Indicators are the best for Intraday Trading?