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Parabolic SAR
Description
The Parabolic Time/Price System, developed by J. Welles Wilder, is
explained thoroughly in his book, New Concepts in Technical Trading.
This indicator is used to set price stops and is often called the
stop-and-reversal (SAR) indicator.
Interpretation
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.
The Parabolic SAR provides excellent stops. You should close long
positions when the price falls below the SAR and close short
positions when the price rises above the SAR.
The Parabolic SAR is plotted as shown in Wilder's book (above). Each
SAR stop level point is displayed on the day in which it is in
effect. Note that the SAR value is today's, not tomorrow's stop
level.
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