Parabolic SAR (PSAR)

#trendfollowing #stoploss

Inventor: J. Welles Wilder Jr.

Plots dots below price in an uptrend and above price in a downtrend. The dots work as a trailing stop that moves faster as the trend gets older, and flip to the other side when price hits them.

PSAR Factor : 0.02 (Step)

PSAR Max : 0.2 (Maximum Step)

The Parabolic SAR(PSAR) indicator plots a dotted line on the chart.

Dots below price indicate bullish trend. Dots above price indicate bearish trend.

The Parabolic SAR indicator is a trend following indicator. When the price is above the Parabolic SAR, it indicates a bullish trend. The price turns bearish when it falls below the Parabolic SAR dots. As a result, it can be used as a stop and reverse indicator (SAR) in the context of trading.

Useful readings:

Dots flip below price: Trend turned up

Dots flip above price: Trend turned down

Gap between price and dots widening: Trend speeding up

Gap between price and dots closing: Trend slowing, exit may be near

Frequent flips in short span: Sideways market, SAR signals unreliable, avoid

Higher step (0.03+): Tighter, faster stop for short-term trades

Lower step (0.01): Looser, slower stop for positional trades

Objective rules:

Bullish: Dots flip from above price to below price.

Bearish: Dots flip from below price to above price.

Stop-loss rule: Exit long when price touches the dot below; exit short when price touches the dot above

Trend filter: Take SAR signals only in the direction of the 200 SMA (avoids whipsaws in sideways markets)

What makes it unique:

It is always in the market – every flip is both an exit and a reverse entry, flat is never an option. Its accelerating dots are the only classic stop that speeds up as the trend ages.

Click here to learn more about the indicator.

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder on RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

The indicator is applicable to all types of charting. It is calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin-Ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.