How Parabolic Sar Indicator Works:
Parabolic Sar is one of the most popular technical indicator used by Forex traders specially for those who like to trade with the direction of trend. It has a significant number of followers due to its automatic assumption of a trader’s full engagement in trading activities. Regardless of the kind of position that you are aiming to establish (and whether the position that you want to pursue is short or long), its employment can bring advantages for your Forex trading career.
The Parabolic SAR (Stop & Reverse) Indicator is a lagging indicator developed by a mechanical engineer, J. Welles Wilder. It was designed for the assessment of a change in market direction. Its basis is on the idea that for the prevention of a loss, you should place trailing stops, as well as establish entry and exit positions during the right moment. Since the Parabolic SAR Indicator’s developer believes that market direction can be dramatically affected by time, it encourages the need for active trading, simply “going with the flow” can increase the probability of a loss. In many trading books, there are lengthy discussions of the concept that time is the forex market’s enemy. The solution is to place trailing stops. As the indicator’s inventor proposes, every trading day is an opportunity for generating a new trailing stop.
Parabolic Sar Formula:
Parabolic SAR n = current SAR value parabolic SAR n + 1 = next day’s SAR value EP = extreme point a = acceleration (usually set to 0.02) Parabolic SAR n + 1 = parabolic SAR n + a (EP – parabolic SAR n)
The calculation for the Parabolic SAR Indicator is usually unique with every price trend. Its value is determined in advance. The value for the next day’s SAR is dependent on the current SAR value. Its values converges above and below the last calculated values based on the trend direction.
Its Importance: The Parabolic SAR Indicator can be very useful for traders since its implementation is almost effortless. Once a higher probability for a change in market direction is observed, the cue to switch directions is given.
A Word of Caution: The Parabolic SAR Indicator is a strict mechanical indicator. Every position should be filtered by well defined rules and emotions should be eliminated. So as long as you’re disciplined in pursuit of the market direction, you can literally become profitable by using this indicator.
Input Parameters
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