What is the Parabolic SAR (Stop and Reverse) indicator?

by cornelius.fay , in category: Stocks and Equities , 8 months ago

What is the Parabolic SAR (Stop and Reverse) indicator?

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1 answer

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by liam , 7 months ago

@cornelius.fay 

The Parabolic SAR (Stop and Reverse) indicator is a technical analysis tool that is used to determine the potential reversal points in a market trend. It is represented by a series of dots that appear above or below the price chart.


When the dots are below the price, it indicates an uptrend, and when the dots are above the price, it indicates a downtrend. The position of the dots also provides information about potential stop-loss levels.


The Parabolic SAR calculation is based on two elements: the acceleration factor (AF) and the extreme point (EP). The AF starts at a certain value and increases gradually as the trend continues. The EP is the highest high or lowest low of the current trend.


As the price trend continues, the SAR dots move closer to the price, reducing the distance between them. When the price surpasses the SAR dot, it indicates a potential reversal, and the dots flip to the opposite side of the price chart, suggesting a change in the trend direction.


Traders use the Parabolic SAR indicator to determine potential entry and exit points in the market. For example, if the dots are below the price, it can be seen as a bullish signal, indicating a potential buying opportunity. Conversely, if the dots are above the price, it suggests a bearish signal, indicating a potential selling opportunity.