Reprinted from: http://www.alpari.co.uk/en/market-analysis-guide/technical-analysis/parabolic.html

Trend Indicators: Parabolic Time Price System

Parabolic indicator (sometimes referred to as SAR) was developed by Welles Wilder in 1976 and was originally called "stop and reverse". The indicator is effective only in a trending market. It helps to define the direction of the prevailing trend and the moment to close positions opened during the reversal.

The closing price (parabolic) is calculated for each bar using the following formula:

Long positions:

SAR (i) = ACCELERATION * (HIGH (i - 1) - SAR (i - 1)) + SAR (i - 1)

Short positions:

SAR (i) = ACCELERATION * (LOW (i - 1) - SAR (i - 1)) - SAR (i - 1)

Where:

• SAR (i - 1) � parabolic value on the preceding bar,
• ACCELERATION � acceleration factor; for the first bar it is usually 0.20, and then it is calculated as follows:
  • AF = 0.20 + n x 0.02, where n � the number of new tops (bottoms),
  • HIGH (i - 1) � high of the previous period,
  • LOW (i - 1) � low of the previous period.

If a trend is bullish, SAR is below the price chart; if it is bearish, SAR is above the price chart. When the price crosses Parabolic SAR, the indicator reverses and its value becomes opposite to the price. The actual point at which the system is reversed is the high or the low of the previous period.

In order to add the indicator in MetaTrader 4 use �Insert -> Indicators -> Trend -> Parabolic SAR� menu sequence:

Parabolic signals:

• When the price chart crosses Parabolic SAR it may be a reversal signal or may indicate temporary consolidation, hence, it is considered as a classic signal to initiate a position.
• Parabolic SAR and trend direction are the same. If parabolic moves higher, then the trend is bullish and vice versa.
• If there is a significant divergence between the price chart and the parabolic, then their convergence may happen very soon.
• When the indicator has completely formed and the Parabolic SAR moves parallel to the price chart, most of the signals will be true; after this, they tend to contract and the number of false signals will be higher.

Parabolic SAR

Parabolic SAR

Buy a copy of School of Pipsology for $49 in PDF format

Buy and download a printable and easy-to-read PDF document containing the ENTIRE School of Pipsology. The PDF is an exact copy of the School section, over 250 pages (pictures included), minus advertisements and chapter-ending quizzes. Read it on-screen or print it so you can take it with you on the road.

When you buy the PDF you'll receive an email within minutes with (1) a DIRECT LINK to download the PDF and (2) a PASSWORD to open the PDF. You MUST have the password to open the PDF.

*Please add INFO@BABYPIPS.COM and SERVICE@BABYPIPS.COM to your SPAM whitelist/safe-sender list.

I agree to be charged $49 for one copy of "School of Pipsology" in PDF format. PAYPAL is the only form of payment accepted. I understand I'm purchasing a single copy for myself and I won't make copies of the book or distribute it to anyone else. If someone else wants a copy I'll encourage them to purchase their own. I also understand that I will need a password to open the PDF each time.

or Cancel

Up until now, we’ve looked at indicators that mainly focus on catching the beginning of new trends. And although it is important to be able to identify new trends, it is equally important to be able to identify where a trend ends. After all, what good is a well-timed entry without a well-timed exit?

One indicator that can help us determine where a trend might be ending is the Parabolic SAR (Stop And Reversal). A Parabolic SAR places dots, or points, on a chart that indicate potential reversals in price movement. From the chart above, you can see that the dots shift from being below the candles during the uptrend, to above the candles when the trend reverses into a downtrend.

Using Parabolic SAR

The nice thing about the Parabolic SAR is that it is really simple to use. Basically, when the dots are below the candles, it is a buy signal; and when the dots are above the candles, it is a sell signal. This is probably the easiest indicator to interpret because it assumes that the price is either going up or down. With that said, this tool is best used in markets that are trending, and that have long rallies and downturns. You DON’T want to use this tool in a choppy market where the price movement is sideways.