Parabolic Stop and Revers (SAR) – Outline
Different categories of Technical indicators
About Parabolic SAR (General information)
How to use it in our trades
Try more in live chart
Totally we can divide Technical indicators into 3 different categories:
Trend-following indicators: (some example)
I. Moving averages (both simple and exponential),
II. MACD (Moving Average Convergence Divergence),
III. Parabolic SAR,
IV. ADX (Average Directional Movement Index)
Momentum indicators: (some example)
I. Relative Strength Index (RSI),
III. Commodity Channel Index (CCI)
Volatility indicators : (some example)
I. Bollinger Bands and
II. ATR (Average True Range)
Mr. J. Walles Wilder developed the other indicator which is categorized as trend following indicator, Parabolic Stop, and Reverse, known as Parabolic SAR. An indicator which in its standard-setting looks like a dots in the chart, sometimes above the candles which means that we are in a downtrend and sometimes under candles which means we are in an uptrend. Traders usually using this indicator to confirm the Trend, entering and exit points of the market.
As you can see below, technically this is the way how this indicator works, however today we will talk about how we can use it and not going into mathematics calculation.
Uptrend: PSAR = Prior PSAR + Prior AF (Prior EP – Prior PSAR)
Downtrend: PSAR = Prior PSAR – Prior AF (Prior PSAR – Prior EP)
EP = Highest high for an uptrend, and lowest low for a downtrend updated each time a new EP is reached.
AF = Default of 0.02, increasing by 0.02 each time a new EP is reached, with a maximum of 0.20.
Let’s check on live chart to see when and how ADX can give us Buy or Sell signals.