Parabolic SAR System (Parabolic SAR) is a market indicator designed specifically for analyzing trending markets. Essentially, this indicator functions similarly to a moving average, but the key difference is that the Parabolic SAR moves with greater acceleration and can shift its position relative to the price. During an uptrend, the indicator is positioned below the price, while in a downtrend, it appears above the price.
The Parabolic SAR value increases as the current bar’s price rises compared to the previous one in a bullish market, and decreases during a bearish market. Meanwhile, the acceleration factor (ACCELERATION) doubles, causing the Parabolic SAR to move closer to the price chart. This means the indicator approaches the price faster when the price rises or falls more rapidly.
This indicator is a standard feature of the MetaTrader trading terminal.
Trading Signals of Parabolic SAR
When the price chart crosses the indicator’s lines, the Parabolic SAR “flips” and subsequent values appear on the opposite side of the price. The turning point is marked by the highest or lowest price of the previous period. This flip signals either the end of a trend or its reversal.
The Parabolic SAR system effectively identifies exit points from the market.
This indicator can also be used as a trailing stop-loss line.
If a long position is open (meaning the price is above the Parabolic SAR line), the indicator line will continue to move upward regardless of price fluctuations.
Parabolic SAR Calculation Formula
For Long Positions (BUY)
SAR (i) = ACCELERATION * (HIGH (i – 1) – SAR (i – 1)) + SAR (i – 1).
For Short Positions (SHORT)
SAR (i) = ACCELERATION * (LOW (i – 1) – SAR (i – 1)) – SAR (i – 1),
where:
- SAR (i – 1) — indicator value on the previous bar;
- ACCELERATION — acceleration factor;
- HIGH (i – 1) — highest price of the previous period;
- LOW (i – 1) — lowest price of the previous period.
Download Parabolic SAR Indicator for Free
The Parabolic SAR indicator is available on many websites, but you generally do not need to download it separately because it is a standard tool included in all major trading terminals and graphical forecasting systems for currency and stock markets. You only need to find it in the list of standard indicators and drag it onto your chart to apply it.
