MetaTrader Indicators

Parabolic SAR technical indicator has been developed to analyze the trending markets and this indicator has been constructed on the price chart. This indicator is same as the moving average technical indicator, with only the dissimilarity being that parabolic SAR moves with higher acceleration and it may change the position in terms of the price. In case of bull market, the indicator is below the prices and when it is bearish (down trend), it is above the prices.

Suppose if the price crosses parabolic SAR lines, further values are situated on the other side of the price the indicator turns. When such an indicator turn does take place, the minimum or the maximum price for the previous period would serve as the starting point. When the indicator makes a turn, the trend end gives a signal of its turn.

For providing exit points the parabolic SAR is an outstanding indicator. When the price sinks below the SAR line, long positions should be closed. When the price rises above the SAR line, the short positions should be closed. Frequently the case of the indicator serves as an irregular stop line.

If the price is above the SAR line i.e. if the long position is open, the parabolic SAR line will go upwards, and in short the length of the SAR line movement depends on the scale of the price movement.

Calculation

Sum of the value of the indicator on the previous bar and the acceleration factor multiplied by the difference of the highest and the lowest price for the previous period. The formula indicates as below:

SAR(i) = SAR(i-1)+ACCELERATION*(EPRICE(i-1)-SAR(i-1))

Note:

SAR(i-1) - indicates the value of the indicator on the previous bar.

ACCELERATION – indicates the acceleration factor.

EPRICE(i-1) – indicates the highest (lowest) price for the previous period (EPRICE =HIGH for long positions and EPRICE=LOW for short positions).

If the price of the current bar is higher than the previous bullish and vice versa the indicator value increases. At the same time the acceleration factor (ACCELERATION) will double, which would cause parabolic SAR and the price to come together. In other words, the faster the indicator approaches the price, the faster the price grows or sinks.