Parabolic Indicator

Parabolic indicator (sometimes referred to as SAR) was developed by Welles Wilder in 1976 and was originally called «stop and reverse». The indicator is effective only in a trending market. It helps to define the direction of the prevailing trend and the moment to close positions opened during the reversal.

In the indicator stops values are calculated on the grounds of the market movement in the direction of the trend. The more the movement the closer the stop loss to the current price value.

SAR(i) = AF * ( High(i-1) — SAR(i-1)) + SAR(i-1) — when the market moves upwards;
SAR(i) = AF * ( Low(i-1) — SAR(i-1)) + SAR(i-1) — when the market moves downwards;

where
SAR(i-1) — parabolic value on the preceding bar;
AF (Acceleration Factor) — acceleration factor.

For the first bar it is usually 0.02, and then it is calculated as follows:

AF = 0,02 + n * 0,02,
where n- the number of new bars.

Parabolic signals:
The indicator is easy to use — Parabolic SAR and trend direction are the same.

When the price chart crosses Parabolic SAR it may be a reversal signal or may indicate temporary consolidation, hence, it is considered as a classic signal to initiate a position.