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Parabolic SAR (Stop and Reverse system)

Utility: Evaluating Trends

Standard Settings: 2% acceleration factor and 20% maximum step

The Parabolic SAR is a technical analysis indicator best used with trending markets, that means with markets or assets that are moving in strong-trends. Parabolic SAR will prove more effective if is combined with another indicator. For example, you may use effectively the Parabolic SAR with ADX.

 

The Parabolic SAR can be used:

(i) Identifying and evaluating the trend

(ii) Defining entry and exit levels

(iii) Calculating Trailing Stops

Parabolic SAR (Stop and Reverse system)

 

Parabolic SAR Calculation:

Rising Parabolic SAR = Previous SAR + Previous AF(Previous EP + Previous SAR)

Falling Parabolic SAR = Previous SAR- Previous AF(Previous SAR- Previous EP)

Where,

AF or Acceleration Factor is the determinant of the sensitivity of the SAR

Previous SAR= The SAR of the previous period

EP or Extreme Point represents the Highest High (in case of an uptrend) or the Lowest Low (in case of the downtrend)

 

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What is the Parabolic SAR

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