Parabolic SAR also known as PSAR, refers to a price-and-time-based trading system. It is developed by Welles Wilder. SAR stands for “stop and reverse”. It is the actual indicator used in the system. In this indicator, SAR trails price as the trend extends over time. The indicator is below prices when prices are rising and above prices when prices are falling. The Parabolic SAR indicator analysis actually stops out and reverses when the price trend reverses and breaks above or below the indicator. Wilder introduced the Parabolic Time/Price System in his 1978 book, New Concepts in Technical Trading Systems.
In the Zerodha Kite platform, traders can find the Parabolic SAR under the STUDIES section. They can attach the Parabolic SAR on to any charts – be it daily, weekly, monthly or intraday. The Minimum AF is 0.02 and the Maximum AF is 0.2. Also, we can set the Minimum AF and Maximum AF high or low which is depends on the result. Check the image below where we attached the moving average indicator on Reliance Industries shares price chart.
Parabolic SAR Calculation
The following is the calculation for PSAR indicator.
Parabolic SAR Indicator Analysis:
SAR follows price and we can consider it as a trend following indicator. In Parabolic SAR indicator, a downtrend reverses and starts up, then SAR follows prices like a trailing stop and this is continuously rising as long as the uptrend remains in place. It is never decreasing in an uptrend and it continuously protects profits as prices advance. The indicator acts as a guard against the propensity to lower a stop-loss. In this indicator, when price stops rising and reverses below SAR, then a downtrend starts and SAR is above the price. SAR follows prices lower like a trailing stop and this continuously falls as long as the downtrend extends.
The Parabolic SAR works best with trending securities. This Parabolic SAR indicator is designed to catch the trend and follow it like a trailing stop. The signal quality of this indicator depends on the settings and the characteristics of the underlying security. The wrong settings will result in whipsaws, losses, and frustration. Also, there is no golden rule or one-size-fits-all setting. Each security should be evaluated based on its own characteristics. This indicator should also be used in conjunction with other technical indicators and technical analysis techniques.
Categories: Technical Indicators