Parabolic SAR – What is, How to Use, Formula & Strategy

What is Parabolic SAR?

An Introduction to the Parabolic SAR

Parabolic SAR is Developed by Welles Wilder, its Price base and time base trading method. SAR stands for Stop & Reverse trading system. SAR trails price as the trend extends time the indicator stops and reverses when the price trend reverses and breaks above or below the indicator. This indicator mainly used by Trader for short term trading or intraday trading. It’s very easy to learn and use.

This system created this way that you are always in trade and with the trend. So who loves to code his strategy is very much happy with this type of indicator. Who believes always in the market for make money this indicator for them?

Parabolic SAR Indicator

This system of Parabolic SAR indicator works in any chart type but for best use, you can apply on candle stick chart type. On the chart its looks like dots placed above or below of price action or chart type. If dots below the chart type or price its indicated upward trends and if dot above the price or chart type then its indicator downward trend. Many people love to see green dots when the price is going up and red dots when the price is going down. You can code that also in this Parabolic SAR indicator.

Parabolic SAR Best Time Frame

Here, a very interesting topic is SL as its always in trend indicator means your SL should be dynamic. It’s trailing base SL indicator. As once ur SL hit it also indicated a reversal signal too. As successful traders say Trend is the best friend of Trader. Parabolic SAR works best in trending market. In range-bound market parabolic, SAR gives you false signals but you can be avoided with ADX indicator. To learn more about ADX click here. The coder may code his strategy with combined PARABOLIC SAR with ADX (average directional index).

Parabolic SAR – Formula

Previous SAR=The SAR value for the previous period.

Extreme Point (EP) = The highest high of the current uptrend

price or the lowest low of the current downtrend price.

Acceleration Factor (AF)=Determines the sensitivity of the SAR.

AF start sat.02 and increases up by.02 every time the EP rises in a Rising SAR or EP falls in a Falling SAR.

The calculations for Rising Parabolic SAR and Falling Parabolic SAR are different so they will be separated.

Rising Parabolic SAR

Previous SAR+Previous AF (Previous EP-Previous SAR) =Current SAR

Falling Parabolic SAR

Previous SAR-Previous AF (Previous SAR-Previous EP) =Current SAR

Start

The starting value for the Acceleration Factor (.02 is the Default).

Increment

The increment in which the Acceleration Factor will move (.02 is Default).

Max Value

The maximum value of the Acceleration Factor (.20 is the Default)

How to use Parabolic SAR effectively?

Zerodha Kite

Open Zerodha Kite Landing Page
Enter Symbol and Click
Click Launch Chart Icon
Go to Studies tab, Search Parabolic SAR
Go with Default settings or change as per your working

Streak By Zerodha

Open Streak website, Login with your kite id and password
Go to Create Tab, Add script, and select time frame
Select Strategy for Buy or Sell and Add Quantity
For Buy – Buy signal to identify a bullish trend, PSAR crosses below Low
For Sell – Sell signal to identify a bearish trend, PSAR crosses above High
Backtests and Run Algo