Parabolic SAR indicator is used on the markets with changing trend directions for calculating the most efficient market entry/exit points. Its main objective is stop loss level calculation. A stop loss is calculated for each candle using the previous bar data. One of the indicator advantages is that a stop level can be defined for the next bar before it is opened.
In general, trading method involving Parabolic SAR indicator is quite simple. If the price level exceeds the indicator, open long positions; if the price level is below the indicator, open short positions.
The main difference between ParabolicSAR R2 and the standard Parabolic SAR indicator is that ParabolicSAR R2 does not turn (reverse) every time the price breaks through it. It turns (reverses) when the bar (candlestick) that broke through it closes above (below) the indicator.
- Step – price change step.
- Maximum – parameter affects the Parabolic SAR envelope line inclination, which in turn changes a position closing time.
For the initial period, the AF acceleration factor is usually equal to 0.02 and then is calculated using the following equation:
AF = 0.2 + i x 0.02,
- i – number of periods after calculation start,
- 0.02 – price change step,
- 0.2 – maximum.