# The Parabolic SAR Indicator An Innovative Strategy by Sofien Kaabar, CFA Investors Handbook

Once this is complete, we have an _updateCurrentVals() method that will take the new high/low values and check for any reversals and make updates to our SAR if necessary. There’s nothing difficult about any of the above calculations. You’re just taking some min/max values and updating SAR and AF at each time step. Despite that, the entire algorithm is a bit complicated because of all of the if/else statements.

The strategy is based on EMA crossover either above or below the price action. It is more like a trailing https://www.bigshotrading.info/ stop, where traders match the stop-loss price with the SAR dots when the price movement rises or falls.

## Initializing the Parabolic SAR

It found that the Parabolic SAR demonstrated a statistical significance of 95% confidence level, while the simple moving average failed to return results as impressive. In an uptrend, the SAR value is derived from its previous highs. The highest and lowest points of the trend direction are referred to as extreme points . The sensitivity of the indicator can also be adjusted using the Maximum Step. While the Maximum Step can influence sensitivity, the Step carries more weight because it sets the incremental rate-of-increase as the trend develops.

### Technical Classroom: How to use parabolic SAR indicator for trading – Moneycontrol

Technical Classroom: How to use parabolic SAR indicator for trading.

Posted: Sat, 09 Mar 2019 08:00:00 GMT [source]

Moving average convergence/divergence is a momentum indicator that shows the relationship between two moving averages of a security’s price. Reversal signals are also generated, eventually, regardless of whether the price actually reverses. This is because a reversal is generated when the SAR catches up to the price due to the acceleration factor in the formula. Therefore, a reversal signal may get a trader out of a trade even though the price hasn’t technically reversed. An MA takes the average price over a selected number of periods and then plots it on the chart. The PSAR looks at extreme highs and lows and then applies an acceleration factor.

## Personal tools

It’s used to identify the direction of the asset’s price and the best entry and exit points. It is also used to highlight stops and reversals (i.e., when the direction of the asset’s price is likely to change). Welles Wilder Jr., parabolic sar meaning whom you might be familiar with from our article about the Relative Strength Index . Depending on the trend direction, SAR will appear above or below an asset’s price on a chart and converges upward or downward towards it.

• Ideally, utilize a spreadsheet where the high and low price, SAR, EP, and AF can be tracked on a period-by-period basis.
• The slope of the parabolas also indicates how momentous a trend is; the steeper the slope, the more momentous the trend, and vice versa.
• Add the latest high to the current trend list (this is just a list of all the highs that we hit during the trend, you’ll see this in action in a bit).