Parabolic SAR (Stop and Reverse) Indicator
Candlefocus EditorThe indicator is based on the parabolic function, which is a non-linear concept. This means that the indicator will increase or decrease its value at an increasing rate with each unit change in the underlying asset. This feature makes the Parabolic SAR extremely sensitive to price changes, and it is capable of generating multiple signals over a short period of time.
The SAR signals are generated by studying the changes in both the price of the asset and the SAR indicator. When the SAR indicator crosses the price of the asset, it signals a potential reversal in direction. Traders can use this signal to enter into a trade which is in the same direction of the change.
In order to make use of the signals the PARABOLIC SAR generates, one must understand the context within which it is generated. The indicator provides an early warning of a potential reversal in price, but only when the price is trading above the SAR indicator are traders likely to make an entry in a long trade. On the other hand, when the price is trading below the SAR indicator, traders are likely to enter into a short trade.
The Parabolic SAR also gives traders the ability to identify medium to long-term trends in the market. By monitoring the indicator over a longer period of time, one can identify potential trends that are emerging and potential reversals, before entering into a trade.
Overall, the Parabolic SAR is an effective tool used by technical traders to identify the direction of the underlying asset and to take advantage of potential trends and reversals. By understanding the signal generated by the indicator and taking into account the current market context, traders can use the PARABOLIC SAR to enter into and exit trades.