Parabolic SAR (Stop and Reverse), also known as parabolic SAR or PSAR, is a technical indicator used in trading to determine market entry and exit points. It was developed by J. Welder in 1978.
▪️The parabolic SAR system is designed to identify trending price movements and provide signals about when the trend may change. It appears on the price chart as a series of points that may be above or below the price, depending on the current trend.
▪️The parabolic SAR system is based on a mathematical formula that takes into account previous prices and extremes. At the beginning of a trend, the SAR points are below the price, and when the trend changes, they jump to the opposite side of the price.
▪️When the SAR point is above the price, it signals that the trend should be down and the trader may consider selling or closing a long position. When the SAR point is below the price, it indicates an uptrend and the trader may consider buying or covering a short position.
▪️The parabolic SAR system also serves as an important indicator for setting stop losses. When the SAR point changes its position and jumps to the opposite side of the price, this can serve as a signal to set a stop loss to protect against potential losses.
It is important to note that the parabolic SAR system works best in trending markets and may be less effective during periods of sideways price movement. As with any technical indicator, it is recommended to use the Parabolic SAR system in combination with other tools and analytical techniques to make informed trading decisions.