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Parabolic SAR Strategy

Discover our Parabolic SAR Strategy PineScript template, designed for traders seeking to use Prabolic SAR indicator. Easily backtest on TradingView and live execute this template on AlgoTest. Adjusting inputs like Acceleration Factor Start, Increment, Maximum, target points, and stop loss points to suit your trading preferences.

Parabolic SAR Indicator Pinedscript​

//@version=5
strategy("Parabolic SAR Strategy", overlay=true)

// Input parameters
af_start = input.float(0.02, title="Acceleration Factor Start")
af_increment = input.float(0.02, title="Acceleration Factor Increment")
af_maximum = input.float(0.2, title="Acceleration Factor Maximum")

target_points = input.int(100, title="Target Points")
stop_loss_points = input.int(50, title="Stop Loss Points")

// Calculate Parabolic SAR
sar = ta.sar(af_start, af_increment, af_maximum)

// Strategy logic
long_condition = ta.crossover(close, sar)
short_condition = ta.crossunder(close, sar)

// Plot Parabolic SAR
plot(sar, color=color.blue, title="Parabolic SAR", offset=-1)

// Strategy entry and exit
if long_condition
    strategy.entry("Long", strategy.long)
if short_condition
    strategy.entry("Short", strategy.short)

// Calculate target and stop loss levels
long_target = strategy.position_avg_price + target_points
long_stop_loss = strategy.position_avg_price - stop_loss_points
short_target = strategy.position_avg_price - target_points
short_stop_loss = strategy.position_avg_price + stop_loss_points

// Strategy exit
strategy.exit("Long Exit", "Long", limit=long_target, stop=long_stop_loss)
strategy.exit("Short Exit", "Short", limit=short_target, stop=short_stop_loss)

Exploring the Parabolic SAR Indicator​

History of the Parabolic SAR Indicator​

The Parabolic SAR (Stop and Reverse) is a popular indicator that was developed by the renowned technical analyst Welles Wilder, who introduced it in his 1978 book, "New Concepts in Technical Trading Systems." The Parabolic SAR is designed to help determine the direction of an asset's momentum and pinpoint potential reversals in price movement.

What is the Parabolic SAR Indicator?​

Parabolic SAR is a trend-following indicator that is used to set stop-loss orders or determine entry and exit points based on prices tending to stay within a parabolic curve during a strong trend. The indicator is represented as dots located either above or below the asset's price on a chart. A dot below the price is considered bullish, while a dot above is bearish.

Best Use Cases for Parabolic SAR Indicator​

  1. Determining Market Trend Direction: The Parabolic SAR is exceptionally useful in identifying the direction of a trend. When the dots flip positions, it signals a potential reversal in the market trend.

  2. Setting Stop Losses: This indicator is particularly useful for setting trailing stop losses. As the trend continues, the Parabolic SAR dots will move closer to the price, helping to lock in profits while still providing the necessary flexibility to stay in the trade.

  3. Entry and Exit Points: Traders use the Parabolic SAR to determine potential entry and exit points. When the dots switch from being below to above the candles or vice versa, it suggests an entry or exit point based on the prevailing trend.

Frequently Asked Questions​

Is Parabolic SAR a good indicator?​

Yes, the Parabolic SAR can be a highly effective indicator when used in trending markets to determine potential reversals, entry, and exit points.

What do Parabolic SAR dots indicate?​

The dots represent potential reversal points. Dots below the price indicate a bullish trend, while dots above indicate a bearish trend.

What is the best strategy for Parabolic SAR?​

One effective strategy is to combine the Parabolic SAR with other indicators like MACD or RSI to confirm trend directions and potential reversal signals.

How is Parabolic SAR calculated?​

The Parabolic SAR is calculated with a complex formula that considers the previous period's SAR, the extreme point (EP) of the previous period, and the acceleration factor (AF).

Is Parabolic SAR profitable?​

Like any trading tool, the profitability of the Parabolic SAR depends on other market conditions and the trader's strategy. It is most effective in trending markets.

What is the best setting for Parabolic SAR?​

The default settings for Parabolic SAR are usually a step of 0.02 and a maximum of 0.2, but these can be adjusted based on the asset and market conditions to make the indicator more or less sensitive.

For more insights and detailed analysis tools, visit AlgoTest Signals.