Parabolic SAR

Overview

 

The Parabolic Time/Price System, developed by Welles Wilder, is used to set trailing price stops and is usually referred to as the "SAR" (stop-and-reversal). This indicator is explained thoroughly in Wilder's book, New Concepts in Technical Trading Systems.

 

Interpretation

The Parabolic SAR provides excellent exit points. You should close long positions when the price falls below the SAR and close short positions when the price rises above the SAR.

 

If you are long (i.e., the price is above the SAR), the SAR will move up every day, regardless of the direction the price is moving. The amount the SAR moves up depends on the amount that prices move.