Developed by Welles Wilder in 1976, Parabolic SAR is the method that is used to find potential reversals in the market price direction. The parabolic SAR is shown on the charts as a series of small ‘dots’ that are placed either above or below the price. A small dot is placed below the price when the trend of the asset is upward, while a dot is placed above the price when the trend is downward.
SAR stands for ‘stop and reverses’ and it is a trend following indicator, designed to identify the turning point in price action. Parabolic SAR is a technical indicator that is used by many traders to regulates the direction of price movements as in falling so in rising markets. Parabolic SAR may be also used to determine the best entry or exit points.
When the dots are below the candles, it is a buy signal. When the dots are above the candles, it is a sell signal.
price is determined by the formula:
Stop Tomorrow = Stop Today + AF * ( EPToday- Stop Today )
Stop Today = Current closing price
Stop Tomorrow = The closing price of tomorrow
EPToday = An extreme level of trading for the day
AF = AF - averaging factor, the first day is usually taken to be 0.02, and then calculated as follows:
AF= 0.2+ n * 0.02
n= number of a new bar.
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