Parabolic SAR Indicator

Type of Indicator

The Parabolic SAR (Stop and Reverse) is a trend-following indicator that helps traders identify potential price reversal points and trend endings. It is particularly useful for detecting dynamic market trends. This indicator was developed by J. Welles Wilder, who also created other popular technical analysis tools like the RSI and ATR.

Purpose

The primary purposes of the Parabolic SAR indicator are:

• Identifying the direction of the trend,

• Determining potential price reversal points,

• Setting stop-loss levels.

Calculation Method

The calculation of the Parabolic SAR involves several steps, which are more complex than many other indicators:

Parabolic SAR in an Uptrend (Bullish):

• In an uptrend, the SAR is calculated by adding to the previous SAR a value which is the product of the acceleration factor (AF) and the difference between the highest price point (EP) in the current trend and the previous SAR.

Parabolic SAR in a Downtrend (Bearish):

• In a downtrend, the SAR is calculated by subtracting from the previous SAR a value which is the product of the acceleration factor (AF) and the difference between the lowest price point (EP) in the current trend and the previous SAR.
  

Acceleration Factor (AF):

• The AF starts…