Description

• Welles Wilder developed the Parabolic SAR in 1976. It was named after the pattern of its stops during runaway moves, which resembled a parabola
• Parabolic aims to catch trends and to reverse positions when a trend reverses.
• It also helps in managing trailing stops as parabolic converges along with price.
• It appears in small dots above and below price

Interpretation

• If price is in uptrend, PSAR appears below the price and converges upwards
• On a down trend PSAR appears above the price and converges downwards
• It is based on a good old rule-move your stops only in the direction of the trade and never against it. If you are long, you may raise your stops but never lower them

Default Parameters Used/Inputs

• Close Line
• Low line
• Initial- first value of acceleration factor (AF) Parabolic SAR
• Increment
• Maximum

Returns/Output

Stop and Reversals indicator

Formula

Rising: PSAR1 = PSAR + {(EP – PSAR) x AF}
Falling: PSAR1 = PSAR - {(EP – PSAR) x AF}
Where,
AF = The acceleration factor
EP = Extreme point reached by the market