Input Parameters

How Parabolic SAR indicator works

Parabolic Sar is one of the most popular technical indicators used by traders, especially those who like to trade with the direction of the trend.

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 and 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. However, simply “going with the flow” can increase the probability of a loss.

Source: Parabolic SAR Wikipedia

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. Therefore, its value is determined in advance. The value for the next day’s SAR is dependent on the current SAR value. Based on the trend direction, its values converge above and below the last calculated values.

Its Importance: The Parabolic SAR Indicator can be very useful for traders since its implementation is almost effortless. Once a higher probability of changing market direction is observed, the cue to switch directions is given.

A Word of Caution: The Parabolic SAR indicator is a strict mechanical indicator. Well-defined rules should filter every position, and emotions should be eliminated.

So as long as you’re disciplined in pursuit of the market direction, you can become profitable using this indicator.