Discussing the article: "Price Action Analysis Toolkit Development (Part 14): Parabolic Stop and Reverse Tool"

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Check out the new article: Price Action Analysis Toolkit Development (Part 14): Parabolic Stop and Reverse Tool.

Embracing technical indicators in price action analysis is a powerful approach. These indicators often highlight key levels of reversals and retracements, offering valuable insights into market dynamics. In this article, we demonstrate how we developed an automated tool that generates signals using the Parabolic SAR indicator.

Working with the Parabolic SAR indicator involves closely monitoring the interaction between the SAR parabola and the price action. In this strategy, signals are generated based on the following logic:

Buy Signal

A buy signal is triggered when:

• The current bar is bullish (its close is higher than its open) and its PSAR value is below the close.
• The previous two bars confirm a bearish trend by having their PSAR dots above their close prices.
• The gap between the PSAR values of the previous bars is within an acceptable range, ensuring consistency.

Author: Christian Benjamin