Trend indicators

Parabolic SAR

Dots below the price in an uptrend and above it in a downtrend, used as a trailing stop that tightens as the trend continues.

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L’idée en termes simples

SAR stands for "stop and reverse". The dots follow the price and accelerate as the trend makes new extremes. When the price touches the dots, the trend is considered over and the dots jump to the other side.

Mode de calcul

Each candle the dot moves towards the extreme price of the trend (highest high in an uptrend) by a fraction called the acceleration factor. That factor starts at 0.02 and grows by 0.02 with each new extreme, up to 0.2.

SAR tomorrow = SAR today + AF × (extreme point − SAR today)
AF starts at 0.02, +0.02 at each new extreme, at most 0.20
If the price crosses the SAR, the trend flips: SAR = previous extreme, AF back to 0.02

Comment l’utiliser

  • Trailing stop: in a long trade, move your stop to the dot each candle.
  • Dots flipping sides marks a possible trend change.
  • Combine with a trend-strength tool such as ADX: SAR works best in trends.

Tirer des conclusions

  • Dots far from the price early in a trend, then closing in: the trend is maturing.

Exemple

In a gold uptrend the dots climb from 2,300 to 2,380 under the candles. When a sharp drop closes below 2,380, the dots switch above the price: a long trader would exit there.

Les prix des exemples sont donnés à titre d’illustration.

Points de vigilance

  • In sideways markets the dots flip constantly and give many losing signals.

Un peu d’histoire

J. Welles Wilder Jr., 1978, "New Concepts in Technical Trading Systems".

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