Part III. Parabolic SAR - Stop And Reversal. Commander in Pips: Today we will talk about the Parabolic Stop And Reversal indicator, better known as Parabolic SAR. Previously we’ve studied some indicators that could be used for identification of a moment, when new trend has possibly started. But the moment when a trend could end is also important as well. For that purpose we can use the Parabolic SAR indicator. Pipruit: Yes, we should have good point for entry, but of the same importance is to also have good point for exit… Commander in Pips: Absolutely, here is how it looks like: Chart #1 | EUR/USD Weekly and Parabolic SAR As you can see Parabolic SAR places dashes, sometimes it could be dots that indicate potential reversals in price movement. The indicator stands below candle chart in an uptrend and above it in a downtrend. A particular line (blue or red) holds in some distance from the market price action until the price will cross it. If it happens – the indicator “suggests” that the trend has shifted and it moves in opposite area. For instance if it holds above the market and indicates a down trend – after price will touch it, it moves below the market and indicates an uptrend. That’s simple. The shorter the distance between indicator’s line and price – the nearer the moment of possible trend ending the trend. Pipruit: And how is it calculated? Commander in Pips: Are you sure that you really want to know it? Pipruit: Now I’m not sure already… Commander in Pips: Ok, as you wish: SARTomorrow = SARToday+AF(EPTrade – SARToday) where: AF begins at 0.020 (default value) and is increased by .02 each bar that a new high/low is made (depending on the trend direction) until a value of 0.20 is reached; EP = Extreme Price point for the trade made so far (if Long, EP is the extreme high price for the trade; if Short, EP is the extreme low price for the trade). Thus, the Parabolic Time/Price System rides the trend until the SAR price is penetrated. Then the existing position is closed out and the reverse position is opened. Pipruit: I should not ask questions like that… Commander in Pips: Come on, it’s not as complex as MACD, right? So, this indicator has three tuning parameters: - Step value – how much SAR value will increase when new extreme will appear; - Start value of indicator; - Max value of indicator.