The Parabolic SAR (Stop and Reverse) (Advanced Analysis)

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Parabolic SAR

The Parabolic SAR has proved to be one of the most simple indicator in stock markets analysis. It is a technical indicator that is used by many traders to determine the direction of an asset’s momentum

The Parabolic Stop and Reverse (SAR) indicator combines the price and time components to generate buy and sell signals. It stops and reverses when the price trend reverses and breaks above or below the indicator.

Parabolic SAR Image

The SAR is shown on charts as a series of small dots that are placed either above or below the candles. If the dots are above the candles, then the trend is likely to be bearish. If the dots are below, the trend is likely to be bullish. Traders use SAR as a trailing stop for open positions. As the price comes to an end, the SAR moves closer to the price until the price ends up touching the dots. The SAR then begins to form on the other side of the price indicating that the price is changing direction. This indicator can also be used for the Step and the Maximum Step. The Higher Step/Maximum Step is equal to higher sensitivity. While combining with the trends it can produce excellent trading system.