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The Parabolic SAR (Stop and Reverse) is a unique strategy that factors in both price and time. It is designed to “trail” a trend closely and flip the position the moment the trend wavers.
How Logic Works
It uses a series of “dots” that appear above or below the price.
- Long Entry: Triggered when the price crosses above a Parabolic SAR dot.
- Short Entry: Triggered when the price crosses below a Parabolic SAR dot.
- Acceleration: As the trend continues, the dots move closer to the price (the “Acceleration Factor”), essentially “chasing” the price to lock in profits.
Key Customizable Inputs
- AfStep (Default: 0.02): How much the “dots” speed up as the trend progresses.
- AfLimit (Default: 0.2): The maximum speed the dots can reach.
Strategic Considerations
- Always in the Market: By default, SAR is a “Stop and Reverse” system, meaning it is designed to be either Long or Short at all times.
Time Decay: Unlike other indicators, even if the price stays flat, the SAR dots will eventually “catch up” to the price, forcing an exit. This makes it excellent for catching accelerating trends but very difficult to use in flat markets.
