Parabolic SAR, «stop and reverse» parabolic system, refers to the trend-following mathematical methods of market analysis. Technical analysis. Part 3. Mathematical methods Lesson 6. Parabolic SAR We have already got acquainted with trend-following and lagging indicators, now we will talk about «stop and reverse» parabolic system — Parabolic SAR. It refers to the trend-following methods and indicates trend direction. Video tutorial: Parabolic system SAR («Stop And Reverse») was developed for trend markets (markets with significant price movement). The range in which the price should stay in order to support the current trend is determined. How is Parabolic calculated In the uptrend Parabolic SAR is below the price, in the down trend is above the prices. The same to other relative indicators (index), «stop and reverse» is expressed in the percentages. The same to some other indicators, that we have studied before, Parabolic changes in the range from 0 to 100%, it has overbought and oversold levels. Interpretation of Parabolic Interpretation of these levels is the same to interpretation of RSI indicator. If price crosses the line of Parabolic SAR, it is a signal for the trend reversal or correction (within current trend). When the price is below the indicator’s line, it is better to close long positions (buy). When the price is above, close short positions (sell). This indicator is typically used to place Stop Loss. How to add Parabolic SAR to a chart on MetaTrader 4 In «Navigator» menu find «Indicators», inside it select «Trend», there you will find Parabolic SAR. Setting the common parameters: ― step — dictates indicator’s sensitivity: sensitivity can be increased by increasing the step; ― Maximum Step: the lower the Maximum Step, the farther to the price action. Add this indicator on the chart and study its behavior. Constant practice is a formula for successful usage of this analytical tool. Our next lesson will be devoted to one of the most complicated tools of mathematical analysis — Fibonacci levels. Its doesn’t refer neither to trend following or lagging indicators. This system bases on the discovery of XIII century made by Italian scientist Leonardo Fibonacci. Mathematical trends revealed by him are very effective in market analysis. It makes indicator very popular among traders.
