Using the Parabolic SAR

Wilder’s book also highlights the Average True Range, the Directional Movement Concept, and RSI. Even though the concept was launched before the era of computers, it still carries the same relevance and is considered one of the most popular trading systems. Calculating the Parabolic SAR becomes complication as the variables make it complicated to put the findings in a spreadsheet. SAR primarily follows the price and is considered as the trend following indicator.

In the event when downtrend reverses and starts to go up, SAR trails the price similar to a trailing stop. And as long as there is an upward trend, the trail would continue to prevail. So basically, SAR never goes down when there is a positive trend and continues to protect profits as the prices rise. The indicator acts as a price guard protecting it against the tendency to lower a stop-loss. So when the price moves below SAR, it indicated a downward trend. The SAR continues to appear like a trailing stop until the downtrend changes.

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