Parabolic Sar

Parabolic Sar

By Boltvitaps | Trading Course | 3 May 2020

The Parabolic Sar was designed by Welles Wilder (like the ATR and other indicators) in the 1970s but is currently used to detect the direction of the trend through a series of points, and to manage trailing stops that we see
in the Money Management module.

The abbreviation SAR stands for "Stop and Reverse", in Spanish "stop and return", so this indicator is used as a confirmation tool to be in a long action (if the price is above the series of SAR points,
ie bullish trend) or short (if the price is below the SAR point series, ie bearish trend.) The Parabolic SAR stops and changes its direction when the trend in the market changes.

In the following image we show what the Parabolic SAR points look like.
These points are the places where we should place the stop loss, corresponding to whether the trend is bullish or bearish.

It must be clear that the Parabolic SAR gives better results when there is a trend, whether it is bullish or bearish.
In lateral or indefinite trend it can give false signals (which sometimes also has them in trending markets), therefore it is not recommended to use it in these cases.
In any case, its use in conjunction with other indicators and technical analysis tools is recommended.

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