Parabolic SAR (pSAR)
The Parabolic SAR (Stop and Reverse) is a system of defining the point of trend's turns; The Parabolic SAR (PSAR) indicator is based on the link between a Forex market's price and time. The basic goals of the Parabolic System are to make reverse orientation of trading positions when the ongoing trend turns. The indicator is called like that because when charted, the pattern resembles a parabola or French curve.
The Parabolic SAR system should be used only when the market has the defined trend. When the trend is absent, this system generates a lot of incorrect signals. Parabolic SAR is base on the following rule: to shift the levels of closing prices only in direction of opened position. If there is a long position opened before, it is possible to increase the level of closing prices, but not to decrease it. If the short position is opened, it is possible to decrease the level of closing prices.
The closing price level is measured like this (for short positions):
SARi = (Lowi-1 - SARi-1) * AF - SARi-1.
The closing price level is measured like this (for long positions):
SARi = (Highi-1 - SARi-1) * AF + SARi-1.
Herein Highi-1 - the highest value of the price in the previous period, Lowi-1 - the lowest value of the price in the previous period, SARi-1 - the value of SAR for the previous period.
AF is the acceleration factor. Step is the step of the closing price changing. Define the speed of shifting the closing prices to the direction of opened position. This value depends on amount of new maximums from the moment of opening if long positions and amount of minimums form the moment of opening the short position. For the first period, the AF value is set to 0.02. It means that the closing price is shifting on 2% from the distinction between the extremum point of the previous period and the current price of closing of position. The limiter value of AF is 0.2.