# Parabolic SAR What Is It? Trading Strategy And Backtest

In this case, we would enter the trade when the RSI crosses above or below the centerline and the SAR is in the same direction. The SAR value would then define the trailing stop to protect you as the trade moves. The original intent of the Parabolic SAR was to manage risk and set stops. This requires the model to use a second indicator for entry signals.

• The indicator will reverse too often if the step is set too high.
• They appear above or below the current candle for a specific reason.
• To trade using the parabolic SAR, you first need to understand what the different signals mean.
• A stop level above the current price indicates that your position is short.
• It is an easy-to use indicator and one that you can use in combination with other indicators.

That means tomorrow’s value is calculated using today’s data. For an upward trending price series, the SAR is going to sit at or below the low values and is usually represented by dots below the parabolic indicator vs sar price line. If the series is trending downwards, then the dots are above the price trend. This medium-term momentum is what the Parabolic Stop-and-Reverse indicator is designed to detect.

## Indicators A ~ C

We’re going to walk through the algorithm first and lay out each step, then get to some examples and the code before showing you how to trade it. As Wilder himself said about the SAR, he knows of no better indicator to squeeze profits out of these moves. DTTW™ is proud to be the lead sponsor of TraderTV.LIVE™, the fastest-growing day trading channel on YouTube. The Parabolic SAR is one of the best indicators you can use when following the trend. The trade is reversed when price equals the Parabolic SAR for the day. Take the difference between the extreme point and the SAR and multiply by the acceleration factor. B. Use Start value (0.02 by default) for the first AF and increase its Increment (0.02 by default) on each day a new low for the trade is made.

With our indicator initialized, we’ll turn to the procedure for updating it during an up trend. If you go back to Wilder’s original https://www.bigshotrading.info/ book, he doesn’t ever tell you how to initialize the SAR, he just begins from Day 4 with some starting values and goes from there.

## How to trade using the parabolic SAR

The descending triangle is a chart pattern used in technical analysis. The pattern usually forms at the end of a downtrend but can also occur as a consolidation in an uptrend. The parabolic SAR performs best in markets with a steady trend. In ranging markets, the parabolic SAR tends to whipsaw back and forth, generating false trading signals.