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
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.
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:
In the above example:
Step = 0.02
Maximum = 0.2
A more useful application of this example could be:
This formula identifies when the closing price crosses above
the Parabolic SAR. This could be considered a trigger to enter a long position.
article is a snippet from the
MetaStock Programming Study Guide...
The Simple Secret to Make Metastock Easy & Identify Profitable
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