Parabolic SAR was developed by J. Welles Wilder. (Yet another indicator, he was nothing if not busy with a pencil and paper in the ’70’s)

Parabolic SAR is designed to indicate exit points – both long and short – such that more unpredictable fluctuations at the beginning of the movement are smoothed, but accelerates upwards (long positions) or downwards (short positions) as the trend comes towards completion.

SAR stands for ’stop and reverse’ and has come to be used in (strongly) trending markets – it really is of little value if the market is relatively flat. Used sensibly, it can be a very accurate tool. I won’t be going through the formula – it’s one of the more complex ones…

Interpretation:-

Current price above the SAR level = an indication to consider entering bullish / long For each day, the SAR level is an indicated point to close, so here, should the price drop below the SAR, the signal is close the long position – and/or, secondarily, the possibility of now opening a favorable short position.

Current price below the SAR level – an indication to consider entering bearish. Again, as the inverse, the day’s SAR level is an indicator to close, or open a new long position.

Below is a chart with a good clean parabolic SAR matching the various trends, largely as it’s supposed to – doesn’t always get this accurate, but for myself, I wouldn’t make or keep a trade without monitoring this indicator.

One Response to “Forex Indicators: Parabolic SAR”

1. Parabolic SAR says:

   October 17, 2008 at 11:19 am

   [...] Original post by ForexPerform [...]

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