تويت
The Parabolic SAR is a popular technical indicator designed to catch major trends and reversal points commonly found on charts across a broad spectrum of asset classes, but how well has it worked in forex market? Through this article we will look at hypothetical results of trading said strategy on major currency pairs. Though past performance is never a guarantee of future results, we hope to gain a better understanding of this indicator and find potential applications for currency trading
Parabolic SAR: What is it and how do we use
The Parabolic SAR is an indicator ****d on price and time designed to closely follow trends and literally “Stop And Reverse” when they have ended. The dot is drawn as the stop and reverse (SAR) point which is below the price in a downtrend and above the price in an uptrend. Once price hits the stop point, the system would close the existing position and reverse direction with the opposite trade?
Acceleration Factor (AF) determines the rate at which the SAR point will converge to current price action. The higher the AF, the more quickly the SAR will converge with price during a trend.
Extreme Point (EP)is the highest high during an uptrend or the lowest low during a downtrend.
The calculation for the Parabolic SAR is such that the “Stop and Reverse” point moves progressively higher and closer to the actual price low as a trend continues. This intuitively makes sense: the longer the trend the more likely it is to reverse. When that reverse occurs, you would want your hypothetical “Stop and Reverse” point as close to current price as possible.
We can vary the speed at which the SAR converges with price via the AF. With each step that price moves to a higher high or a lower low, the SAR point will move closer to a rate directly proportional to the AF. The default value for the AF on most charting packages and in literature is 0.02, while the maximum AF is most often capped at 0.20.
Sample trading rules using the Parabolic SAR are subsequently rather simple: go long when the stop and reverse point is below current price and go short when it is above. Thus we have a simple system to test, and hypothetical performance is easy to calculate using automated trading software
forex parabolic sar trading strategy : information of the trades
entry point
When the Parabolic stop and reverse point is below current price, go long. If price subsequently touches the stop point, close the long position and go short on the open of the next bar
stoploss: Stop and reversal point is the stop loss and point at which the strategy flips direction
take profit : none
exit point : When price hits the stop and reversal point, close the trade at the open of the next bar and flip direction
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