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Parabolic Stop And Reverse

Type

Trend indicator

Short introduction

Welles Wilder developed the Parabolic SAR (PSAR) around a stop mark. In addition to the stop mark, the price development and time are included in the indicator.

Statement

The PSAR is constantly in the market, which means that every time the PSAR cuts the price curve, a trading signal is triggered. Please note that the PSAR requires a certain "warm-up time" and therefore the first signals should be ignored.

Formula/calculation

SARn = SARn-1 + (AF × (EPlast - SARn-1))

where:

SARn = Current SAR value

SARn-1 = SAR value of the previous day

EPlast = Extreme price of the last trend phase (high in uptrends, low in downtrends)

AF = Acceleration factor

The calculation of the PSAR is complex. We therefore recommend that you study the relevant literature.

Interpretation

The PSAR always fluctuates around the actual price trend. When a trend is formed, the PSAR approaches the price trend more and more, a cut of the PSAR with the price trend finally triggers the signal. The PSAR works primarily in very strong trend markets, in trendless markets the PSAR almost only provides false signals.

Default setting

  • Daily
  • Period 14 days
  • Acceleration factor 0.02
  • Maximum acceleration factor 0.2

Example: PSAR

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