The parabolic SAR is a time and price indicator in technical trading. It's used to identify the direction of the asset’s price and the best entry and exit points. It is also used to highlight stops and reversals (i.e., when the direction of the asset’s price is likely to change). SAR is short for “stop and reversal system”. It was developed by J. Welles Wilder Jr., whom you might be familiar with from our article about the Relative Strength Index (RSI)
On a chart, the parabolic SAR is visualized as a sequence of dots next to the price bars. The reason it is called “parabolic” is because the resulting dots tend to form the shape of a parabola. The type of the trend determines the location of the parabola. It is located below the price during bullish trends, while during bearish trends, it stands above it.
Like any other technical indicator, the parabolic stop and reversal should be used in addition to others. Often, the trading signals it generates aren’t enough to confirm a particular move’s potential, which is why it is complemented by the moving average, stochastic, ADX, or other indicators.
Before we dive deeper into the exploration of the buy and sell signals generated by the indicator, it is important to mention that the parabolic SAR works mainly in trending markets. According to its father, J. Welles Wilder Jr., traders should use the indicator to identify the trend’s direction and then switch to alternatives to help them measure its strength.
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0:00 Music Intro
0:13 Intro
1:20 The details
2:33 Take a look
4:31 Buy signals
8:04 Sell signals
10:20 The settings
11:01 Standard settings
11:50 Increased step value
12:50 Pros
14:29 Cons
15:13 Conclusion
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