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The Parabolic SAR Time/Price System was developed by J. Welles Wilder and was first featured in his book New Concepts in Technical Trading Systems in 1978. The Parabolic Time/ Price system derives its name from the fact that when charted, the pattern formed by the stops resembles a parabola. This system follows ‘Stop and Reverse’ methodology, which means that while trading this system, you would always hold a position in the market, either Long or Short. Therefore, whenever a stop loss is hit the position is reversed. That’s why each stop point is called SAR, which stands for Stop And Reverse. In this post we would explore a fully automated Parabolic SAR Excel sheet.
The system allows room for the market to react for the first few candles after a trade is initiated and then the stop begins to move more rapidly. The stop is not only a function of price but also a function of time. For example, if you are Long, the stop will move UP every day regardless of the direction the price is moving. The stop is related to price because the distance the stop moves up is relative to the favorable distance the price has moved.
Also Read: Parabolic SAR Trading System: Amibroker AFL
Parabolic SAR is incredibly simple to use. When imposed over a stock chart, it plots a series of dots either above or below the price line.
- If PSAR dotted line is below the price, it indicates buy signal
- If PSAR dotted line is above the price, it indicates sell signal
Source: http://www.onlinetradingconcepts.com/
It works well in trending markets, and exhibits whipsaws during sideways market. Many traders also uses parabolic SAR as a stop loss indicator to exit their trade.
Below are some of the important terminologies used for Parabolic SAR Calculation:
Previous SAR = Previous period’s SAR value.
Extreme Point (EP) = Extreme price reached in the direction of the current trend.
Acceleration Factor (AF) = Determines the rate-of-change of the SAR.
The calculations for Parabolic SAR and Parabolic SAR in uptrend and downtrend are different.
Parabolic SAR in Uptrend= Previous SAR + Previous AF(Previous EP – Previous SAR)
Parabolic SAR in Downtrend= Previous SAR – Previous AF(Previous SAR – Previous EP)
Parabolic SAR creates a parabola on the chart. When price in anuptrendbreaks below the parabola (which will be below the trend), this signals a potentialreversal of price. When price breaks above the parabola (which will be above the trend) during adowntrend, this can also signal a price reversal.
One aspect to consider is the Acceleration Factor (AF) that was mentioned in the calculation. The AF, which moves in user-defined increments, is a value which will determine the sensitivity of the SAR. AF increases as thetrendcontinues in the same direction until it reaches its maximum value as defined by the user (usually 0.20). The lower the AF, the further away SAR is from price, therefore it is less likely to signal a stop or reversal, while a higher value for AF will make SAR more sensitive towards price and more likely to get hit. The default values suggested by Welles Wilder for AF increments and maximum AF are 0.02 and 0.20 respectively.
The parabolic SAR is generally plotted on a chart as a series of dots and these dots indicate where your stop loss should be at a given point of time. A small dot is placed below the price when the asset is in a general uptrend, while a dot is placed above the price when the asset is in a downtrend.
Also Read: Best Technical Analysis Courses for Beginners
This is an automated macro-enabled spreadsheet which calculates Parabolic SAR value and Buy/Sell signals for the symbol entered. You need not to do anything manually.
See the below screenshots:
Step 1:Download the Excel file from the end of this post.
Step 2:Open this Excel file and make sure you are connected to the internet. Please accept if it asks to enable Macros and Data connections.
Step 3:Input theSymbol Name,Exchange Name,Interval,Number of Days, Minimum AF and Maximum AF
Step 4:Click on Get Data button. The data would be automatically downloaded and Parabolic SAR values would be calculated.
Please see the below link to download Parabolic SAR excel sheet. Let us know if you have any feedback or comments.
Parabolic SAR Trading System Excel Sheet
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