MetaStock Parabolic SAR Function

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The Parabolic SAR (Stop and Reverse) indicator is quite useful and is often used in determining exits from trades. The formula is quite complex and beyond the scope of this study guide, but its interpretation is relatively straightforward. The dotted lines below the price establish the trailing stop for a long position and the lines above establish the trailing stop for a short position. Thus, long trades should be closed when the price drops below the Parabolic SAR and short positions closed when the price rises above the Parabolic SAR. The Parabolic SAR can be used in any time frame.

SYNTAX SAR(Step, Maximum)

Step _ As a security makes new highs, the Parabolic SAR will rise according to this step value. The higher the step value is set, the more sensitive the indicator will be to price changes. If the step is set too high, the indicator will fluctuate above and below the price too often, making interpretation difficult.

Maximum _ This is the maximum value that the SAR step can obtain. The maximum step controls the adjustment of the SAR as the price moves. The lower the maximum step value is set, the further the trailing stop will be from the price.

EXAMPLE

The following formula plots the Parabolic SAR where the value will rise or fall in 0.02 increments and will rise to a maximum value of 0.2:

SAR(0.02,0.2)

In the above example:

Step = 0.02

Maximum = 0.2

APPLICATION

A more useful application of this example could be:

Cross(C,SAR(0.02,0.2))

This formula identifies when the closing price crosses above the Parabolic SAR. This could be considered a trigger to enter a long position.

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