Parabola stop and reverse (SAR)

Wells Wilder's parabolic stop and reversal (SAR) is a trailing stop-based trading system; it is also often used as an indicator. SAR uses trailing stop levels to follow prices up or down. The stop level increases the speed according to the acceleration factor. When drawn on a chart, this stop level is similar to a parabola, so the name of the indicator. The parabolic function takes three parameters. The first two control the acceleration when moving up and down, respectively. The last parameter determines the maximum acceleration.

Parabolic SAR assumes that you are trading a trend, so prices are expected to change over time. If you are long, the parabolic SAR will move up and stop for each period, regardless of whether the price has moved or not. Parabola SAR moves down if you are short.

How does this indicator work?

1. The parabolic SAR trading system uses the parabolic level as the "stop and reversal" point to calculate the stop loss for each upcoming period. When the stop is hit, you close the current trade and initiate a new one in the opposite direction. This system allows you to invest in the market at any time.

two。 Indicators are usually displayed as a series of dots above or below the price bar. The point is the stop level. When you stop above the railing, you should be short; when you stop under the railing, you should be for a long time.

3. Parabolic SAR may cause whiplash saws in sideways or endless markets.

4. Parabolic synthetic aperture radar performs well in fast-moving trends, which accelerate over time. Stopping is also counted as acceleration; therefore, you need to have the correct "acceleration factor" to Match Group,Inc. The market, you are trading. The upper and lower acceleration parameters may be different.

The chart above shows that the indicator captures profits well in trends, but it can lead to many false signals when prices move sideways or trade in volatile markets. When prices rise, this indicator will keep traders in trading. When prices trade sideways, traders should expect more losses and / or small profits.

The chart below shows the downtrend, which will keep traders short (or not long) until they start to pull back to the upside. When the downtrend resumes, the indicator allows traders to re-enter.

Parabolic SAR is also a way to set stop-loss orders. When a stock rises, move the stop loss to the parabolic SAR index Match Group,Inc. The same concept applies to short trades-indicators fall as prices fall. Move the stop to Match Group,Inc. The level of each price bar after the indicator.

Similarly, if the price is above the moving average, pay attention to the buy signal (the point moves from top to bottom). The SAR index can still be used as a stop-loss indicator, but since the longer-term trend is upward, it is unwise to take a short position.

Bottom line

Parabolic SAR is used to determine the direction of stocks and place stop-loss orders. In a trend environment, this indicator tends to produce good results, but when prices start to trade sideways, it produces a lot of false signals and loss-making trading. To help filter out some bad trading signals, you have to trade in the direction of the dominant trend. Other technical tools, such as moving averages, can be assisted in this regard.