Parabolic (SAR) a trend following system
BY Chris Andreou
|January 26, 2021A time/price reversal system that is always in the market.
- It is a trend following system
- SAR stands for Stop and Reverse
- Works well in trending markets – useless in trading ranges
Notice as prices trend higher, the rising dots below the price action tend to start out slower and accelerate
In a downtrend the same thing happens, but in the opposite direction.
Parabolic SAR looks like dots on a chart.
- Buy signals given when upper SAR was hit (arrows 1 and 2).
- Whipsaw at arrows 3 – 4 indicated trading range with Buy signal acceleration as price advanced in new uptrend.
Parabolic SAR on monthly charts can be used to track the primary long-term trends.
Interpretation
- The SAR is a delayed system since the SAR number is available only on the next period.
- Each day/period the stop moves in the direction of the new trend.
- At first, movement is slow but accelerates as the trend becomes more established.
Conclusion:
A time / price reversal system that is always in the market.
- Prices trend higher, rising dots below price
- Prices trend lower, falling dots above price
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