Parabolic SAR
Parabolic SAR is a useful tool for catching new trends early, provides an excellent buy and sell signals.
Overview
• The Parabolic SAR (Stop and Reverse) is a trend-following, is "stop-loss".
• It works well in trending markets, but tends to outbid during non-trend phases out.
• A parabola below the price is generally bullish.
• A parable about the price is generally bullish.
The parabolic system by Welles Wilder who also developed the Relative Strength Index (RSI) was developed, is usually referred to as the Parabolic "SAR" (stop and reverse). Mr Wilder designed this indicator to supplement the other trend-following systems.
The Parabolic SAR is a "stop-loss" system used to implement further price stops. The name of the system is of parabolic shape, price movements in the form of a dotted line following derivatives. When the parabola follows along below the price that the dealer has to buy his or long term. A parable about the price suggests selling or going short.
The particular value of Parabolic SAR is that it's dealers can catch new trends relatively early. If the new trend of the parabola moves quickly from one side of the price to another, thus generating the stop and reverse signal.
Mr. Wilder built an acceleration factor in the parabolic system. For trend of the times is necessary, is the movement of the indicator slowly - with the points close to each other. As acceleration increases, the parabola move faster (with more distant points), until it catches up to price action.
As with most indicators, Parabolic SAR performs best in market trends and is less reliable during sideways or congestive phases.
Signals
The Parabolic SAR is an outstanding indicator for providing exit points - offering sell signals when the parabola moves above the price. Buy signals are generated when the parabola falls below the price. Of course, these signals by the price action itself and other complementary indicators to be confirmed.
It is always useful to look at different periods, using daily, weekly and monthly charts.
Combining Parabolic SAR with DMI
John Murphy, author of the technical analysis of financial markets, should complement the use of a filter system on the dish. He suggests, with the Directional Movement Index (DMI) to eliminate false signals and whipsaws in the parabolic system more sensitive. Is it a simple rule, he noted that the DMI and Parabolic SAR indicators can complement each other as follows: ". When the + DI line is above the-DI line, all Parabolic sell signals can be ignored," We can the effectiveness of this strategy below. (The ADX line is essentially the difference between the smoothed DI + and DI-lines.)
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