Parte 17 Análise Técnica Oscilador estocástico

Parte 17: Análise Técnica – Oscilador estocástico.


No nosso artigo de hoje, estaremos falando sobre um indicador muito usado e popular especialmente entre os iniciantes. Sua popularidade decorre de seu uso em muitas estratégias disponíveis em vários sites, fóruns, etc. Portanto, é fácil para um iniciante se acostumar a usá-lo e segui-lo apesar de não saber o que seus valores realmente significam.


Você gostaria de saber de que indicador estou falando? Quais valores ele mostra? O que esses valores significam e como usá-lo? Continue lendo para saber mais!


Oscilador estocástico.


Este oscilador tem estado conosco há algumas décadas. Foi descrito pela primeira vez por George Lane na década de 50. O indicador estocástico não mostra o preço de um determinado bem ou o volume de transações feitas. Ele mostra a velocidade das mudanças de preços . Essas mudanças são traduzidas em figuras em uma escala de 0 a 100 , e podem ser facilmente colocadas em um gráfico.


É assim que se parece o oscilador estocástico.


Como mencionado acima, a imagem mostra claramente que os valores do oscilador se movem, isto é, “oscilam” entre os valores de 0 e 100. Isso é bastante simples. Mas o que esses valores representam ?


Simplesmente o seguinte:


Quando a linha (o valor do oscilador estocástico) está no topo (próximo do 100, digamos, 80 ou mais) isto significa que o ativo está sobrecomprado. Quando a linha está no fundo (digamos, abaixo dos 20) nós podemos assumir que o ativo está sobrevendido.


Sobrecomprado e sobrevendido.


Os dois termos podem ser traduzidos da seguinte forma: sobrecompra significa que o ativo está sendo comprado excessivamente, sobrevenda significa o lado oposto: um ativo vendido excessivamente. Isso é exatamente o que mostra o indicador estocástico. Mostra a demanda atual por um ativo. Essas indicações podem significar duas coisas:


Nós podemos esperar uma inversão na tendência (indo de sobrecomprado para sobrevendido) ou o movimento oposto – status quo por algum período de tempo. Como mostra claramente a figura abaixo, ambas as opções podem acontecer.


Ignore as setas no lado debaixo do oscilador estocástico.


Como você pode ver na figura acima, os dois casos acontecem.


Assim que o oscilador cai abaixo da linha 20 (no começo das linhas Fibonacci) o preço sobe. Um ativo sobrevendido se transformou em um sobrecomprado, levando a um aumento instantâneo. Depois do primeiro pico acima de 80, os valores continuam os mesmos por um longo tempo e os compradores continuam comprando. Em vez de cair, o preço subiu ainda mais.


Como usar o indicador estocástico?


Este indicador pode ser usado de duas maneiras. Você pode usá-lo como uma ferramenta para a filtragem de negociação. Você pode negociá-lo com a tendência (os preços mudam seguindo a tendência de longo prazo) ou na direção oposta .


Caso 1:


Caso 1: Pico duplo, reversão de 100% confirmada por Fibonacci com a reversão do indicador Estocástico.


Este caso mostra como você pode usar o indicador estocástico para confirmar os sinais . No lado esquerdo do gráfico, você pode ver duas setas produzidas pela estratégia BERSI Scalp. Se você tivesse usado o oscilador estocástico como um filtro, você teria evitado essas duas perdas.


No meio da imagem, você pode ver duas linhas verticais. As duas marcam o local onde a tendência se inverteu. Usando o oscilador estocástico, você poderia ter filtrado e visto que o preço acabaria voltando para baixo. Fácil, não é?


Caso 2:


Caso 2: Indicador estocástico confirma uma tendência contínua.


No segundo caso, como você pode ver acima, o preço subindo bruscamente e em seguida despencando (ambos destacados pela linha vertical).


O indicador estocástico mostra que, em um caso, o preço está sobrevendido e, no outro, sobrecomprado. Não há nada mais fácil do que seguir a tendência de comprar ou vender. Se você seguir a tendência atual, certamente terá lucro.


O sinal no caso 1 é ainda mais forte porque foi impulsionado pela seta BERSI Scalp . Eu recomendo que você coloque o indicador estocástico em seu arsenal.


Mais informações.


Minha recomendação pessoal é não usar o oscilador estocástico como o único sinal para abrir um negócio. No entanto, eu recomendo ele para filtragem . Se você está prestes a abrir um negócio, vendo alguma formação no gráfico (ou um sinal em outra estratégia), você deve primeiro olhar o que o indicador estocástico indica. Se o indicador não confirmar o movimento em sua direção, não vá em frente. Em vez disso, espere um pouco pelo próximo sinal.


Graças à filtragem, você pode separar os sinais bons dos ruins para negociar apenas quando o sinal é suficientemente forte, ou seja, confirmado por vários indicadores. O indicador estocástico não é o único indicador que se deve usar como filtro. Você também pode usar o Indicador ADX ou IFR.


Outras fontes.


Oscilador estocástico ( stockcharts.com – explicação mais “científica” do indicador ) Opções binárias que funcionam ( best binary options strategy.com – uma das boas estratégias de AT usando o oscilador estocástico ) Confirmando reversões com indicadores (xbinop.com/br)


Autor.


Mais sobre J. Pro.


Ao contrário do Stephen (o outro autor), ultimamente eu tenho pensado principalmente nos negócios online. Eu não tinha muito sucesso com dropshipping na Amazon e outras formas de ganhar dinheiro online, e só ganhava algumas centenas de dólares por ano. Mas então, as opções binárias chamaram minha atenção pela sua simplicidade. Agora fico feliz com isso, porque realmente vale a pena. Mais postagens.

Para Residentes En geoplugin countryName .

Para Residentes En.


Las Opciones Binarias pueden cambiarte la vida . es un hecho. Te lo digo porque a mí me la cambió. Puedes ganar mucho dinero mientras sepas operar , sin embargo, en ocasiones, operar es difícil, hacer análisis gráficos y predecir tendencias correctamente puede ser algo complejo. hasta ahora.


Algobit es el sistema de trading online para principiantes más simple creado hasta la fecha. El sistema de Algobit permite que los usuarios que no tienen conocimiento en trading online hacer operaciones positivas simplemente al usar un sistema de señales algoritmicas patentadas directamente en la plataforma de trading. Puedes iniciar con Algobit y abrir tu cuenta solamente con U$200 dólares o €200 Euros.


Algobit fue reconocida como un producto revolucionario en servicios de trading financiero y fue galardonada como el mejor producto en 2022 en el Financial Innovation Awards (FIA) , asimismo fue votada como La Mejor Tecnología De Trading Innovadora del 2022 . En 2022 el sistema fue integrado dentro de la plataforma de operaciones de trading de OptionBit y fue puesta a disposición gratuitamente con la apertura de la cuenta en OptionBit para todos sus usuarios a nivel global.


VIDEO - Pruebas De Ganancias Algobit - Optionbit 2022.


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


VIDEO - TESTIMONIO DESDE COLOMBIA.


U$400 Iniciales Transformados En U$6,273.10.


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


VIDEO - Pruebas De Ganancias Algobit - Optionbit Mayo de 2022 U$2.100.


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


VIDEO - TESTIMONIO DESDE ESPAÑA.


€ 1,000 De Ganancias En 45 Minutos.


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


SCREENSHOT DE OPERACIONES - TESTIMONIO DESDE ECUADOR.


31 operaciones fueron hechas, cada una con una inversión de $100. 19 operaciones ganadoras dan un total de $1444 en ganancias 8 operaciones que se perdieron dan $800 de pérdida 4 operaciones fueron a empate (inversión inicial devuelta)


Total de ganancias en esta sesión fue de $644.


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


VIDEO - Pruebas De Ganancias Algobit - Optionbit Julio 2022.


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


VIDEO - TESTIMONIO DE REINALDO DESDE COLOMBIA.


U$200 Iniciales Transformados En U$274 El Primer Día De Operaciones.


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


VIDEO - TESTIMONIO DE ANNA DESDE RUSIA.


¡U$31,168 De Ganancia TOTAL gracias a ALGOBIT !


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


OTRO VIDEO TESTIMONIO DE ANNA.


Depósito Inicial de U$200 - Transformados En 281.98 USD En 2 Minutos.


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VIDEO TESTIMONIO DE ANTOINE DE FRANCIA.


Depósito Inicial de €500 Euros.


73% De Efectividad En Una Sesión - Saldo Actual De €5717 Euros.


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¡Es por esto que puedo asegurar que las opciones binarias es un negocio real y gracias al robot algobit de Optionbit todo el proceso de análisis es practicamente nulo, pero aún así MUY EFICAZ Y RENTABLE! "


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


Beneficios de Algobit.


Algobit tiene muchos beneficios, pero estos son los más importantes gracias a los cuales se convertirá en un inversor en opciones binarias aún más exitoso:


Un beneficio de hasta un 81 % sobre cualquier inversión ganadora- Algobit aumentará la cantidad de inversiones ganadoras que va a introducir.


De uso sencillo No necesita tener ninguna destreza técnica para poder usar Algobit - Algobit lo hace todo por usted.


Señales por transferencia continua El algoritmo de Algobit se basa en predecir el curso de la inversión, las señales que recibe se generan en tiempo real y sigue los cambios de mercado de forma automática ofreciéndole las señales inversoras más precisas.


Gráficos en tiempo real Una vez que elige un valor, el programa mostrará la dirección actual de forma automática y hará que sea mucho más sencillo seguir la evolución de las inversiones.


Corredores de bolsa respetables Algobit solo apoya a los mejores corredores. Usted puede estar seguro de que el corredor con el que trabaja usted está asegurado y es de confianza.


Registro fácil Lo único que necesita es seguir los pasos del registro y empezar a operar .


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MÁS TESTIMONIOS.


Algobit ha recibido muchos comentarios positivos de los usuarios que lo usan por primera vez, así como de traders expertos que confirmaron que se mejoro su beneficio comercial hasta un 22% por el cambio a ALGOBIT. Éstos son sólo algunos comentarios de los usuarios algobit .


Acabo de terminar mi primer mes de negociación con Algobit - tengo que decir que cuando escuché por primera vez acerca de Algobit, estaba seguro de que iba a ser otro uno de esos sistemas de señales que realmente no funcionan. Pero estaba equivocado. Algobit me permite seguir mis activos favoritos, pero al mismo tiempo me alerta de las tendencias que se forman en otros lugares! Gracias a Algobit mis ganancias aumentaron en más de un 60% en un mes - mi ingreso semanal promedio es de cerca de $ 2000! Esto realmente es increíble ya que me ayuda a maximizar mi potencial de comercio de opciones binarias".


Donna Mathews.


"Realmente no tengo palabras para expresar lo útil que Algobit resultó ser! Mis experiencia en Opciones Binarias fue cambiada por completo - ahora puedo estar seguro de que no me pierdo de las tendencias en el mercado y, además - se cuando entrar y el tiempo exacto cuando salir! Como ustedes saben - el tiempo es el elemento más importante para el trading. Desde que comencé a usar Algobit, mis ganancias aumentaron significativamente y ahora estoy haciendo un promedio de $ 3000 por mes cuando antes yo estaba estancado en apenas $ 1.000 . Esto es una mejora increíble! ¡Muchas gracias! "


Laura Santoro.


"Después de un largo período de comercio en opciones binarias, me quedé sorprendido de ver cómo funciona con exactitud Algobit y qué profunda diferencia que hace en mi trading. El trading de opciones binarais es ahora relajante y fácil, mis ganancias son mucho mayores y me gusta el proceso, mientras que mi familia disfruta de los pagos! "


George Tate.


"El trading de opciones binarias siempre fue rentable, pero los beneficios que hice antes de empezar a operar con Algobit no eran muy grandes y finalmente seguía perdiendo . Desde que empecé a operar con Algobit - Mi rango de ganancias pasóe € 512 a € 2000 al mes y ahora no puedo ser más feliz! Algobit es simple, no estresante en absoluto y sobre todo ES MUY RENTABLE ". Aquí envío parte de mis operaciones :)


"He realizado operaciones desde hace mucho tiempo, pero existe comparación entre el antes (trading simple de gráficas) y el trading del futuro usando señales EXACTAS con Algobit. Ya no estoy perdiendo horas para encontrar la operación perfecta, todo lo que necesito hacer ahora es seguir las señales proporcionadas por este sistema increíble y mis ganancias solo crecen y crecen! ".


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


PREGUNTAS FRECUENTES.


1. ¿Cuál es la inversión mínima para iniciar y como accedo a algobit?


Respuesta: U$200 Dólares o Euros , sin embargo si inicias con más dinero, recibirás bonos especiales de 100% (Depósitos de U$500 o €500) , 200% (Depósitos de U$1000 o €1000) o 300% (Depósitos mayores a U$1000 o €1000) . Eso significa por ejemplo que si inviertes U$500 tendrás U$1000 en tu cuenta para hacer transacciones. Recuerda que puedes usar tanto euros como dólares y la aplicación de la estrategia es la misma siempre. Para acceder a ALGOBIT solo debes abrir tu cuenta en OptionBit y automáticamente tendrás acceso al sistema (Desde el mismo navegador y dentro de tu cuenta de OptionBit )


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


2. ¿Cómo hago el depósito de mi inversión y el retiro de mis ganancias?


Respuesta:


Puedes usar cualquiera de las siguientes opciones dentro de la plataforma de OptionBit.


OPCIONES DE DEPÓSITO & RETIRO DISPONIBLES.


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


¿Cómo Me Registro En Algobit?


Haz click En.


Te aparecerá esta pantalla:


NOTA: Si al momento de desear hacer tu depósito te aparece el siguiente cuadro de 0% (Solo aparece este error temporal en español y en alemán):


Posteriormente aparecerá esta pantalla :


Luego tendrás acceso a esta pantalla en inglés: en donde escoges el modo de depósito.


También está la anterior pantalla en Español (actualmente es la misma ventana de arriba con las mismas opciones de depósito)


Luego para acceder a ALGOBIT y empezar a hacer operaciones puedes acceder aquí:


https://algo.optionbit.com/algobit/?lang=es.


VERSIÓN EN VIDEO: COMO HACER TU DEPÓSITO Y ACCEDER A ALGOBIT.


NOTA: Si al momento de desear hacer tu depósito te aparece el siguiente cuadro de 0% (Solo aparece este error temporal en español y en alemán):


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


3. ¿Existe un mínimo de retiro? - ¿Cómo Puedo Retirar mis Ganancias?


Respuesta: No, no existe un mínimo de retiro. Sin embargo, OptionBit™ te permite realizar un retiro al mes sin comisiones. A los demás retiros se les aplicará una tasa de 30 USD / 25 EUR / 20 GBP / 38 TRY por retiro adicional.


- Observa debajo como puedes hacer tu retiro -


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


4. ¿Cuantas operaciones a la vez puede hacer ALGOBIT?


Respuesta: Ilimitado número. la capacidad de operaciones depende de la liquidez de tu cuenta. Puedes hacer las operaciones que desees a la vez. Sin embargo en ALGOBIT prima la calidad de las operaciones por lo cual su número se mantendrá en parámetros adecuados de acuerdo a la liquidez de tu cuenta de OptionBit .


5. ¿Estaré sólo?, ¿recibiré alguna asesoría adicional?


Respuesta: Sí, recibirás un asesor de cuenta que te ayudará en el proceso de registro y al momento de hacer tus operaciones, asi mismo, tan pronto tengas depósitos en tu cuenta, puedes escribirme a [email protected] para ayudarte a operar con ALGOBIT .


Respuesta: Si, actualmente OptionBit es uno de los mejores Brokers de opciones binarias del mercado, y tiene licencia Europea por parte de la CySec. Eso garantiza la seguridad de tus transacciones, dinero y retiro de ganancias.


7. ¿Deseo empezar ahora y empezar a ganar dinero usando ALGOBIT, que debo hacer?


(Al momento en que hagas click en registrase espera hasta 15 segundos para que se cargue la página)


Si quieres enviar un testimonio en video usando ALGOBIT recibirás U$50 de regalo. Solo envíalo a [email protected] con una resolución mínima de 720P y fomato MP4 mostrándonos tus ganancias con el sistema.

Parabolic sar opções binárias

je-suis-tm/quant-trading.


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README.md.


We’re right 50.75 percent of the time. but we’re 100 percent right 50.75 percent of the time, you can make billions that way.


--- Robert Mercer, co-CEO of Renaissance Technologies.


If you trade a lot, you only need to be right 51 percent of the time, we need a smaller edge on each trade.


--- Elwyn Berlekamp, co-Founder of Combinatorial Game Theory.


The quotes above come from a book by Gregory Zuckerman, a book every quant must read, THE MAN WHO SOLVED THE MARKET.


Most scripts inside this repository are technical indicator automated trading. These scripts include various types of momentum trading, opening range breakout, reversal of support & resistance and statistical arbitrage strategies. Yet, quantitative trading is not only about technical analysis. It can refer to computational finance to exploit derivative price mismatch, pattern recognition on alternative datasets to generate alphas or low latency order execution in the market microstructure. Hence, there are a few ongoing projects inside this repository. These projects are mostly quantamental analysis on some strange ideas I come up with to beat the market (or so I thought). There is no HFT strategy simply because ultra high frequency data are very expensive to acquire (even consider platforms like Quantopian or Quandl). Additionally, please note that, all scripts are historical data backtesting/forward testing (basically via Python, not C++, maybe Julia in the near future). The assumption is that all trades are frictionless. No slippage, no surcharge, no illiquidity. Last but not least, all scripts contain a global function named main so that you can embed the scripts directly into you trading system (although too lazy to write docstring).


Table of Contents.


Monte Carlo Project Oil Money Project Pair Trading Portfolio Optimization Project Smart Farmers Project Wisdom of Crowd Project.


Awesome Oscillator Bollinger Bands Pattern Recognition Dual Thrust Heikin-Ashi Candlestick London Breakout MACD Oscillator Parabolic SAR Relative Strength Index Pattern Recognition Shooting Star.


Bloomberg/Eikon CME/LME Histdata/FX Historical Data Macrotrends Stooq/Quandl Reddit WallStreetBets Web Scraping Yahoo Finance/fix yahoo finance package/yfinance package.


1. MACD oscillator.


MACD oscillator is trading strategy 101. MACD refers to Moving Average Convergence/Divergence. It is a momentum trading strategy which holds the belief that upward/downward momentum has more impact on short term moving average than long term moving average. It only takes 5 minutes for any bloke with no background in finance to trade with MACD signals. Regarding the simplicity of MACD oscillator, it is the most common strategy among the non-professionals in the market. In behavioral economics, the more people believe in the strategy, the more effective the strategy becomes (not always true, e.g. 2008). Therefore, we should not underestimate the power of MACD oscillator.


For the strategy itself, we compute long term moving average and short term moving average on the close price of a given stock. To generate the trading signal, we implement a comparison between the moving averages of different time horizons. When short term moving average is above long term moving average, we long the given stock accordingly. Vice versa.


Click here to be redirected to the script.


Pair trading is the basic form of statistics arbitrage. It relies on the assumption that two cointegrated stocks would not drift too far away from each other. First step, we select two stocks and run Engle-Granger two step analysis. Once the criteria of cointegration is met, we standardize the residual and set one sigma away (two tailed) as the threshold. After that, we compute the current standardized residual of the selected stocks accordingly. When the standardized residual exceeds the threshold, it generates the trading signal. The simple rule is we always long the cheap stock and short the expensive stock.


The core idea of pair trading is cointegration. Metaphorically speaking, cointegration is like a couple in a clingy relationship where two parties are crazy-glued together. Yet, most relationships break sooner or later, and only the very few can make it to the marriage (from a statistics perspective, not being pessimistic). Hence, it is important to frequently check on the status quo of cointegration before any pair trading order execution (the same applies to relationships).


Click here to be redirected to the script.


3. Heikin-Ashi candlestick.


Heikin-Ashi, the exotic name actually referring to 'Average Bar' in Japanese, is an alternative style of candlestick chart. The sophisticated rules of Heiki-Ashi are designed to filter out the noise for momentum trading. Hence, Heikin-Ashi shows more consecutive bars in contrast to the standard candlestick, which makes price momentum and reverse points more distinguishable in figures. Arguably it should outperform the standard candlestick in sideways and choppy markets.


For the strategy itself, initially we make a few transformations on four vital benchmarks - Open, Close, High, Low. The next step is to apply unique Heikin-Ashi rules on Heikin-Ashi Open, Close, High, Low to generate trading signals. The downside of Heikin-Ashi (or any momentum trading strategies) is the slow response. Thus, we should set up the stop loss position accordingly so that we don't get caught up in any flash crash.


The rules of Heikin-Ashi can be found in Quantiacs.


Click here to be redirected to the script.


4. London Breakout.


To one of my favourite cities in the world! Proud to be a Londoner!


London Breakout is an intra daily opening range breakout strategy. Basically, it is a fascinating information arbitrage across different markets in different time zones. FX market runs 24/7 globally. For instance, you cannot long the stock of Ford in ASX simply because Ford is listed in NYSE. As FX market is decentralised, you can long any currency pair in any market as long as the market is open. That leaves a door to take a peek at the activity in a closed foreign FX market before the opening of domestic FX market.


Back to London Breakout, London and Tokyo are two of the largest FX markets in the world. Tokyo FX trading hour is GMT 0:00 a.m. - GMT 8:59am. London FX trading hour (no summer daylight saving) begins at GMT 8:00 a.m. Even though there is an hour of overlap, the crucial timeframe of London Breakout is GMT 7:00 a.m. - GMT 7:59 a.m. a.k.a. the last trading hour before the opening of London market. The price movement of the crucial timeframe incorporates the information of all the overnight activities of financial market (from the perspective of the current time zone).


For the strategy itself, we establish upper and lower thresholds prior to the high and low of the crucial timeframe. Once London FX market opens, we spend the first couple of minutes to check if the price would breach the preset boundaries. If it is above threshold, we long the currency pair accordingly. Vice versa. Nevertheless, we should set up a limit to prevent us from trading in the case of abnormal opening volatility. Normally, we clear our positions based on our target stop loss or stop profit respectively. By the end of the trading hour (still from the perspective of the current time zone), if there are any open positions, we clear them out.


Click here to be redirected to the script.


5. Awesome oscillator.


Awesome oscillator is an upgraded version of MACD oscillator. It is one of those momentum strategies focusing on the game of moving average. Instead of taking simple moving average on close price, awesome moving average is derived from the mean of high and low price. Similar to MACD oscillator, it takes both short term and long term moving averages to construct the oscillator.


There are various strategies for awesome oscillator to generate signals, such as traditional moving average divergence, twin peaks and saucer. Twin peaks is just one of the many names of bottom W pattern. The pattern recognition will be covered in another chapter so the main focus of this chapter is saucer. Saucer is slightly more complex to implement than the traditional divergence. In return, saucer has the power to beat the slow response of the traditional divergence. Generally speaking, a faster response may sound awesome, but it does not guarantee a less risky outcome or a more profitable outcome. Hence, we will take MACD oscillator as a control group, to test if awesome oscillator can actually outperform MACD oscillator.


The rules of awesome oscillator could be found in TradingView.


Click here to be redirected to the script.


6. Oil Money project.


This project is inspired by an article on oil-backed foreign exchange. Amid the bullish outlook for crude oil, the currency exchange of oil producing countries would also bounce back. Does this statement really hold?


According to the article by Bloomberg (or many other similar research), researchers examine the correlation between petrocurrency and oil price, instead of the causality. But correlation does not equal to causality. Correlation could be a coincidence of a math game. We simply cannot draw the conclusion that oil price moves the currency. Some researchers even use bootstrapping which greatly destroys the autocorrelation of a time series. Thus, it is vital to apply academic analysis and computer simulation on some petrocurrencies to test the causality of oil.


For more details, please refer to the read me page of a separate directory or quant trading section on my personal blog.


If you search dual thrust on google, you will end up with results of rocket engine. Don't panic yet, you can rest assured that dual thrust strategy is nowhere near rocket science. It is just an opening range breakout strategy developed by the founder of Universal Technical Systems. The mathematics involved in this strategy is merely primary school level.


Initially we establish upper and lower thresholds based on previous days' open, close, high and low. When the market opens and the price exceeds certain thresholds, we would take long/short positions prior to upper/lower thresholds. The strategy is quite useful in intra daily trading. However, there is no stop loss/profit position in this strategy. We reverse our positions when the price goes from one threshold to the other. We need to clear all positions by the end of the day.


Rules of dual thrust can be found in QuantConnect.


Click here to be redirected to the script.


8. Parabolic SAR.


Parabolic SAR is an indicator to identify stop and reverse of a trend. Usually, Parabolic SAR is presented as dotted line either above or below the price in charts. When the price is an uptrend, SAR curve would sit below the price. When the price is downtrend, SAR curve would rise above the price. Parabolic SAR is always considered as a symbol of resistance to the price momentum. When SAR curve and the price curve cross over, it is when trade orders are supposed to be executed.


The building of this strategy seems very simple, but the construction of the indicator is extremely painful due to the involvement of recursive calculation. Illustration on how to compute Parabolic SAR can be found in Wikipedia but it is not very well explained. To get a clear idea of the calculation, my personal recommendation is to take a look at the spreadsheet made by joeu2004.


It is worth mentioning that SAR and RSI (which will be featured in a later chapter) shares the same founder, Welles Wilder. The guy is a real legend who used to work as mechanical engineer and real estate developer and later became a technical analyst. His book on technical trading system is a must-read for anyone that wants to elevate quant trading system to the next level.


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9. Bollinger Bands Pattern Recognition.


Bollinger Bands is a very simple but powerful indicator. There are three bands of this indicator. The mid band is the moving average on the price series (usually takes 20 lags). The upper and lower bands are two moving standard deviations away from the mid band. Bollinger Bands can be used to test for various types of strategies.


For volatility trading, contraction and expansion of the band width are crucial elements. Any distinct momentum clustering (it can take form of either upward or downward) would result in a Bollinger Bands expansion. And the oscillation in a horizontal channel would result in a Bollinger Bands contraction.


For momentum trading, the phenomenon of 'walking the band' indicates the resistance and support level of the underlying asset. In a strong trend, the price constantly attempts to touch or break through the upper/lower band along with Bollinger Bands moving towards the same direction.


For pattern recognition, Bollinger Bands has the capability of testing bottom W, top M, head-shoulder patterns, etc. With upper and lower bands served as an interval, it is easier to identify the hidden pattern in the historical data.


More details of Bollinger Bands can be found in TradingView.


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10. Relative Strength Index Pattern Recognition.


RSI (Relative Strength Index) is also a popular indicator. It reflects the current strength/weakness of the stock price momentum. The calculation is pretty straight forward. We use 14 days of smoothed moving average (or other moving average methods) to separately calculate the intra daily uptrend and downtrend. We denote uptrend moving average divided by downtrend moving average as the relative strength. We normalize the relative strength by 100 which becomes an index called RSI. It is commonly believed that RSI above 70 is overbought and RSI below 30 is oversold. This is the simplest way to trade on RSI (as shown in the pictures below). Nonetheless, there could be divergence between RSI momentum and price momentum which will not be covered in the script. The effectiveness of any divergence strategy on RSI is rather debatable.


If you are looking for something slightly more complex, well, we can apply pattern recognition technique to RSI as well. Unlike strategy No.9 Bollinger Bands, we can directly look at the patterns of RSI itself instead of the price. Since we have tested double bottom pattern in Bollinger Bands, we would test head-shoulder pattern on RSI this time.


For details of head-shoulder pattern, please refer to Investopedia.


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11. Monte Carlo project.


Monte Carlo, my first thought on these two words is the grand casino, where you meet Famke Janssen in tuxedo and introduce yourself, 'Bond, James Bond'. Indeed, the simulation is named after the infamous casino. It actually refers to the computer simulation of massive amount of random events. This unconventional mathematical method is extremely powerful in the study of stochastic process.


Here comes the argument on Linkedin that caught my eyes the other day. "Stock price can be seemed as a Wiener Process. Hence, we can use Monte Carlo simulation to predict the stock price." said a data science blog. Well, in order to be a Wiener Process, we have to assume the stock price is continuous in time. In reality, the market closes. The overnight volatility exists. But that is not the biggest issue here. The biggest issue is, can we really use Monte Carlo simulation to predict the stock price, even a range or its direction?


For more details, please refer to the read me page of a separate directory or quant trading section on my personal blog.


12. Options Straddle.


Here marks the debut of options strategy in this repository. Straddle refers to the shape of compasses in the payoff diagram of the strategy. A long straddle involves buying a call option and a put option at the same strike price, the same expiration date and preferably the same price. In reality, the same price is not always feasible (call options price higher implies higher upside risk, vice versa). It is recommended to trade when the price disparity between call and put options is converging.


Long straddle is commonly seen in event driven strategy, e.g. political referendum, company earning release. It profits from the uncertainty of both-side risk. For upside risk, the potential profit is unlimited. The potential loss does not come from the downside risk (there is limited gain from downside risk). Instead, it comes from the stagnant price due to insufficient volatility. In this case, short straddle is more suitable for sideways choppy market.


The crucial element of options straddle is the selection of the strike price. As the price of options contains the market consensus, the only way to maximize the profit is to find the optimal strike price to shrink the loss bandwidth. This is where the economists kick in and offer base case outlook plus best/worst scenarios. In contrast to the common misunderstanding of quantitative trading, Option Greeks are no silver bullet. Quantitative combined with fundamental in one, so-called quantamental, makes the portfolio impeccable.


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13. Portfolio Optimization project.


Modern portfolio theory was introduced in 1952 by Nobel laureate Harry Markowitz. It is part of investment class 101. But I watched a video by Wolfram recently. It challenged the traditional approach and introduced graph theory to asset diversification. There are plenty of quant shops deploying fancy mathematic tools to solve the market. The real question for us is, as fancy as it sounds, does graph theory work on portfolio optimization?


This project is documented in the repository of Graph Theory. For more details, please refer to the read me page of a separate directory or graph theory section on my personal blog.


14. Smart Farmers project.


I know a lot of you have complained that this repository isn’t quantitative enough. You are yelling for the ultimate weapon of math destruction such as Poisson process or Jensen’s inequality. Well, the objective of quantitative trading is churning out more �� rather than deploying an elegant closed form equation. If you crave for intellectual challenge in mathematics, you are always welcome to check out my Graph Theory repository. Nevertheless, I believe the birth of this project will meet your picky demand. Buon appetito ��


�� �� �� �� and �� are something we have been taking for granted. Up until COVID-19, we finally come to senses that farmers are one of our low-paid essential workers. This project is dedicated to the optimal allocation of agricultural resources. By trading agricultural market, we are able to eliminate the inefficiency in the crop market. Ideally no food will be wasted and farmers will be fairly compensated.


The project per se intends to leverage convex optimization to approximate farmers’ plantation planning for different crops. Assuming farmers are Homo Economicus, their end game is to maximize the profit regarding the price impact from supply and demand. Their decision is constrained by arable land area and biological features of crops. We develop this smart model accordingly to acquire a head start in trading �� ☕ and ��


For more details, please refer to the read me page of a separate directory or quant trading section on my personal blog.


15. VIX Calculator.


VIX is the fear gauge of S&P 500 index. By using Riemann sum and Taylor series expansion, we are able to convert a continuous fair price variance swap to a discrete options volatility index, which is called VIX. VIX is determined by two components, 3-week-ahead weekly S&P 500 options and one-month-ahead monthly S&P 500 options. It is de facto market anticipated volatility of S&P 500 index in 30 days. So far it has been applied to some stock exchange indices and some forex pairs. Since VIX is such a great risk management tool, why don’t we apply it to any asset with options contract? The objective of this script is to create a VIX calculator for any commodity options within any given length of forecast time horizon.


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16. Wisdom of Crowds Project.


Every now and then, we read some bulge brackets hit the headline, “XXX will reach 99999€ in 20YY”. Some forecasts hit the bull’s eye but most projections are as accurate as astrology. Price prediction can be easily influenced by the cognitive bias. In the financial market, there is merit to the idea that consensus estimate is the best oracle. By harnessing the power of ensemble learning, we are about to leverage Dawid-Skene model and Platt-Burges model to eliminate the idiosyncratic noise associate with each individual judgement. The end game is to reveal the underlying intrinsic value generated by the collective knowledge of research analysts from different investment banks. Is wisdom of crowds a crystal ball for trading?


This project is documented in the repository of Machine Learning. For more details, please refer to the read me page of a separate directory or machine learning section on my personal blog.


17. Shooting Star.


Can we pretend that airplanes in the night sky are like shooting stars? I could really use a wish right now!


--- Hayley Williams, Lead Vocalist of Paramore.


Shooting star, such a poetic name, is merely a simple candlestick pattern. It has a long upper shadow, little lower shadow and a small real body, which resonates the shape of a shooting star. Similar to a real comet, shooting star is a jinxed signal. It indicates the beginning of a bearish momentum after a price uptrend. However, the definition of a shooting star in mathematics is sophisticated. Not many candlesticks can suffice the rigid criteria of shooting star. In practice, people relax the constraint on shooting star in order to trigger the signal.


A sibling of shooting star is called hammer which is effectively a vertical flipped shooting star with bullish outlook. The close price of a hammer is supposed to be higher than the open price. Another sibling of shooting star is called inverted hammer. Inverted hammer shares the same shape with shooting star, but inverted hammer comes with higher close price than open price and usually is an omen of price hike. Nonetheless, there is no "inverted shooting star". As malicious as it sounds, the official name is called hanging man.


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About.


Python quantitative trading strategies including VIX Calculator, Pattern Recognition, Commodity Trading Advisor, Monte Carlo, Options Straddle, Shooting Star, London Breakout, Heikin-Ashi, Pair Trading, RSI, Bollinger Bands, Parabolic SAR, Dual Thrust, Awesome, MACD.

Parabolic SAR Indicator Definition Formula Trading Strategies

Parabolic SAR Indicator: Definition, Formula, Trading Strategies.


Cory Mitchell, CMT is the founder of TradeThatSwing.com. He has been a professional day and swing trader since 2005. Cory is an expert on stock, forex and futures price action trading strategies.


​Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas.


What Is the Parabolic SAR Indicator?


The parabolic SAR indicator, developed by J. Wells Wilder, is used by traders to determine trend direction and potential reversals in price. The indicator uses a trailing stop and reverse method called "SAR," or stop and reverse, to identify suitable exit and entry points. Traders also refer to the indicator as to the parabolic stop and reverse, parabolic SAR, or PSAR.


The parabolic SAR indicator appears on a chart as a series of dots, either above or below an asset's price, depending on the direction the price is moving. A dot is placed below the price when it is trending upward, and above the price when it is trending downward.


Key Takeaways.


The parabolic SAR (stop and reverse) indicator is used by technical traders to spot trends and reversals. The indicator utilizes a system of dots superimposed onto a price chart. A reversal occurs when these dots flip, but a reversal signal in the SAR does not necessarily mean a reversal in the price. A PSAR reversal only means that the price and indicator have crossed.


The Formula for the Parabolic SAR Indicator.


A rising PSAR has a slightly different formula than a falling PSAR.


RPSAR = Prior PSAR + [ Prior AF ( Prior EP-Prior PSAR ) ] FPSAR = Prior PSAR − [ Prior AF ( Prior PSAR-Prior EP ) ] where: RPSAR = Rising PSAR AF = Acceleration Factor, it starts at 0.02 and increases by 0.02, up to a maximum of 0.2, each time the extreme point makes a new low (falling SAR ) or high ( rising SAR ) FPSAR = Falling PSAR EP = Extreme Point, the lowest low in the current downtrend ( falling SAR ) or the highest high in the current uptrend ( rising SAR ) \begin &\text=\text+\\ &[\text\left(\text\right)]\\ &\text=\text-\\ &[\text\left(\text\right)]\\ &\textbf\\ &\text\\ &\text\\ &\text\\ &\text\\ &\text)\text \left(\text\right)\\ &\text\\ &\text\\ &\text\left(\text\right)\text\\ &\text\left(\text\right)\\ \end ​ RPSAR = Prior PSAR + [ Prior AF ( Prior EP-Prior PSAR ) ] FPSAR = Prior PSAR − [ Prior AF ( Prior PSAR-Prior EP ) ] where: RPSAR = Rising PSAR AF = Acceleration Factor, it starts at 0.02 and increases by 0.02, up to a maximum of 0.2, each time the extreme point makes a new low (falling SAR ) or high ( rising SAR ) FPSAR = Falling PSAR EP = Extreme Point, the lowest low in the current downtrend ( falling SAR ) or the highest high in the current uptrend ( rising SAR ) ​


How to Calculate the Parabolic SAR Indicator.


There are lots of things to track when using the parabolic stop and reverse indicator. One thing to constantly keep in mind is that if the SAR is initially rising, and the price has a close below the rising SAR value, then the trend is now down and the falling SAR formula will be used. If the price rises above the falling SAR value, then switch to the rising formula.


Monitor price for at least five periods or more, recording the high and low (EPs). If the price is rising, use the lowest low of those five periods as the prior PSAR value in the formula. If the price is falling, use the highest high of those periods as the initial prior PSAR value. Use an AF of 0.02 initially, and increase by 0.02 for each new extreme high (rising) or low (falling). The maximum AF value is 0.2. Ideally, utilize a spreadsheet where the high and low price, SAR, EP, and AF can be tracked on a period-by-period basis.


Charting software automatically calculates the PSAR, which means traders only need to know how to interpret the indicator’s signals.


What Does the Parabolic SAR Indicator Tell You?


The parabolic indicator generates buy or sell signals when the position of the dots moves from one side of the asset's price to the other. For example, a buy signal occurs when the dots move from above the price to below the price, while a sell signal occurs when the dots move from below the price to above the price.


Traders also use the PSAR dots to set trailing stop loss orders. For example, if the price is rising, and the PSAR is also rising, the PSAR can be used as a possible exit if long. If the price drops below the PSAR, exit the long trade.


The PSAR moves regardless of whether the price moves. This means that if the price is rising initially, but then moves sideways, the PSAR will keep rising despite the sideways movement in price. A reversal signal will be generated at some point, even if the price hasn't dropped. The PSAR only needs to catch up to price to generate a reversal signal. For this reason, a reversal signal on the indicator doesn't necessarily mean the price is reversing.


The parabolic indicator generates a new signal each time it moves to the opposite side of an asset's price. This ensures a position in the market always, which makes the indicator appealing to active traders. The indicator works most effectively in trending markets where large price moves allow traders to capture significant gains. When a security’s price is range-bound, the indicator will constantly be reversing, resulting in multiple low-profit or losing trades.


For best results, traders should use the parabolic indicator with other technical indicators that indicate whether a market is trending or not, such as the average directional index (ADX), a moving average (MA), or a trendline. For example, traders might confirm a PSAR buy signal with an ADX reading above 30 and a bounce for a long-term rising trendline.


The Parabolic SAR vs. a Moving Average (MA)


The PSAR and MAs both track the price and help show the trend, but they do it using different formulas.


An MA takes the average price over a selected number of periods and then plots it on the chart. The PSAR looks at extreme highs and lows and then applies an acceleration factor. These varying formulas look very different on the chart and will provide different analytical insights and trade signals.


Limitations of Using the Parabolic SAR Indicator.


The parabolic SAR is always on, and constantly generating signals, whether there is a quality trend or not. Therefore, many signals may be of poor quality because no significant trend is present or develops following a signal.


Reversal signals are also generated, eventually, regardless of whether the price actually reverses. This is because a reversal is generated when the SAR catches up to the price due to the acceleration factor in the formula. Therefore, a reversal signal may get a trader out of a trade even though the price hasn't technically reversed.


Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

Parabolic SAR Formula and Trading Examples with Multiple Timeframes

Parabolic SAR – Formula and Trading Examples with Multiple Timeframes.


In this article, I will discuss several key things related to the Parabolic SAR indicator. The topics will range from how to compute the indicator, all the way to how to interpret buy and sell signals. I will cover the indicator from a day, swing, and long-term trading perspective.


Table of Contents.


Background.


J. Welles Wilder Jr. wrote a book called New Concepts in Technical Trading Systems , where he introduced the Parabolic SAR which stands for stop and reverse. This indicator does an amazing job of finding support and resistance levels.


The goal of the indicator is to provide you a visual of where to exit your trading position. The indicator also has a sensitivity to price, so as the stock accelerates, the indicator can weigh that movement accordingly.


Also, unlike other indicators like oscillators which provide oversold and overbought readings, the Parabolic SAR is here to help you identify stops.


While some traders will use it as a signal for both entries and exits, the primary purpose of the tool is to help you with where to stop out of a trade.


So, if you are looking for a quick visual approach for stop-loss management, this indicator is a great starting point.


Parabolic SAR Chart Example.


Figure 1: Parabolic SAR.


Parabolic SAR During Bullish and Bearish Markets.


Most popular charting platforms include the Parabolic SAR. The indicator is plotted on the price chart above and below the candlesticks.


During an uptrend, the Parabolic SAR dots are below the price. Conversely, during a bearish trend, the dots print above the price.


Parabolic SAR and Price Action.


During strong trends, the gap between the price and dots widens. However, if the market is flat or choppy, the dots and price interact with one another quite frequently.


Understanding the Parabolic.


Parabolic SAR Formula.


SAR n is the current period and+1 is the next period’s SAR value.


EP represents the highest price in an uptrend and the lowest in a downtrend.


The most important variable in the Parabolic SAR formula is the α. This represents the acceleration factor in the formula.


Parabolic SAR Settings.


Charting packages by default will set the α value to 0.02.


Once the price makes a new high or low, the acceleration factor increases by 0.02, this explains the reason why the gaps between the Parabolic SAR and price increase during strong trends.


Focusing on the Tool as a Stop.


You will find that the Parabolic SAR provides several signals. These signals are sometimes interpreted as buying or selling opportunities.


In my opinion, the strength of the indicator is in its ability to close you out of a trade. You should rely on your trading system for getting you in and out of positions.


Do not place this burden on the Parabolic SAR.


Long Stop.


Let’s revisit what a long stop looks like. Again, the parabolic SAR is going to print beneath the price action. Now, the hard part for you is to determine whether you are going to use the default settings or make tweaks to the indicator based on how the security is trading.


Long Stops on Volatile Stocks.


For example, let’s look at a volatile stock like SEEL.


Long Stops – Parabolic SAR.


When reviewing the chart, it likely looks like the stop orders are clear. However, the move after these stops are hit is swift and strong.


In all but the first break, the retracements are greater than 75% of the prior move. This is where trading becomes difficult.


If you have made a decent profit, at what point do you exit the position? At what point do you hold for bigger profits?


As you can see, the indicator stops you out, but the money management aspect of the trade can be lost by focusing solely on the chart with fast movers.


Parabolic SAR Stop Exit Strategies.


Here are a few things you can do to protect your profits on the way up. There is no perfect strategy, and each stock will react differently, but you can test each out to see which one increases your odds of profitability.


Exit a Portion of Your Position On The Way Up.


Some traders will exit a portion of their position on a breakdown thru the SAR to limit their loss potential. This can work, but a better approach is to close out a portion of your position as the stock spikes higher in your favor.


On really strong moves up, one thing I have noticed when day trading is that the stock will on average have three pushes higher. Each push will give you an opportunity to lighten your position.


Exit on Each Push Higher.


In the image above, notice how as TPX moved higher, we rewarded ourselves on each push. Please note, most charts will not look this clean .


Which leads me to the next set of options for managing trades with the indicator.


Increase the Timeframe or Reduce the Accelerator.


Going back to the earlier portion of the post. You can always give a stock more room on its path to your target. The obvious benefit with this approach is that you will avoid being shaken out of a winning trade.


The downside is that you will potentially give back more than you would like on the trade.


Increasing the Timeframe.


Increasing the timeframe is an oldie but goodie in terms of reducing the noise once in a position.


Here is a chart of TSLA on a 5-minute timeframe. During the trading day, the indicator triggered two stops on a long position.


Switching to a 15-minute timeframe, you will notice that TSLA did not trigger one sell signal on the day.


One Sell Signal.


For me, I like to hyper-focus on one timeframe once in a position.


Once you start introducing too many timeframes, you may start to see things that just aren’t there.


Also, you never know the timeframe the trader that is controlling the stock is trading. Therefore, it’s best to fully understand how a stock should perform ou your desired timeframe and react to its movements accordingly.


Modifying the Acceleration Factor.


In order to focus on one timeframe, another option is to widen the stop on the indicator. You do this by decreasing the value of the accelerator, so it does not react as quickly.


For example, let’s look at the recent LYFT IPO as a working example.


.02 Acceleration.


Again .02 is the default setting for most trading applications.


.01 Acceleration.


Now take a look at the same chart after modifying the accelerator to .01 to widen the stop.


As you can see, the same stock, on the same timeframe, but reducing the accelerator has allowed us to stay in the trade a little longer.


So, out of the two approaches for staying in the trade longer, reducing the accelerator feels more natural to me and again does not introduce another dimension of another timeframe when managing the open position.


Parabolic SAR – Swing Trading and Long-Term Investing.


Believe it or not, the indicator works just as well when day trading as swing trading or even long-term investing.


Swing Trading.


Swing trading will require you to focus on a daily chart timeframe most likely. Below is a daily chart of TSLA.


I know the above chart is not what you were expecting. You were likely looking for a clean daily chart, where TSLA goes straight to the moon.


When reviewing charts, at times you are going to come across plays like TSLA. These are going to be the plays where you see a nice range, but the stock has several head fakes.


This is where the Parabolic SAR can not only help you with stopping out trades but also as an entry tool.


Parabolic SAR as a Filter.


Going back to our swing trading example with TSLA, notice how the chart is displaying several areas where you would have been stopped out of both long and short positions.


At this point, the indicator and price action are giving you a clear indication of TSLA’s behavior. Since the stock is not trending hard, any gains you make will be evaporated once the stock falls back inside of the range.


This gives you two clear choices.


Don’t take any Setups.


If you are looking to ride the trend, at a glance, you will see that this is not going to work for that sort of trading approach. Therefore, you can just skip TSLA and look for other trading opportunities.


Trade the Range.


The other option is to understand that TSLA is in a trading range based on the number of stops triggered. You can then increase the accelerator, so you do not give back so much of your gains.


Then a buy order can be placed at the low of the range and a sell at the high of the range. You also will want to increase the value of the accelerator so that you can keep your profits in the bank.


Long-Term Investing.


I’m not going to go into depth with this section, as it is a rinse and repeat of the prior portions of the article. Again, the indicator works the same on all timeframes. Providing you clear entry and exit positions.


The key differential for you is you will have a wider range for your stops as you are likely using a weekly timeframe for long-term investing.


Please check out the below chart as a working example.


This is Just Wrong.


In the above chart is the stock ELGX. Now, I’m not going to jump on the bashing bandwagon, but looking at the Parabolic SAR on a weekly timeframe, would you touch the stock right now?


Now, remember, this is for long-term investing purposes. I’m hoping the answer is no.


You are better off placing your money in something safer that does not have the potential to continue cratering lower.


Again, the indicator can do so much more than just stop you out of trades; it can help guide you on when to avoid certain setups.


How Can Tradingsim Help?


After reading this article, I hope it’s apparent that simply adding the indicator and starting to trade is not realistic. You are going to have to document each setup, volatility of the security you are trading and the overall strategy you are using.


You have to monitor all of these factors to determine the optimal Parabolic SAR stop strategy for your respective system.


Tradingsim provides the most realistic market replay experience in the world. You can choose intraday, daily and even weekly timeframes to identify the best method for using the Parabolic SAR.

Parabolic SAR 3

Parabolic SAR.


Developed by Welles Wilder, the Parabolic SAR refers to a price-and-time-based trading system. Wilder called this the “Parabolic Time/Price System.” SAR stands for “stop and reverse,” which is the actual indicator used in the system. SAR trails price as the trend extends over time. The indicator is below prices as they're rising and above prices as they're falling. In this regard, the indicator stops and reverses when the price trend reverses and breaks above or below the indicator.


Wilder introduced the Parabolic Time/Price System in his 1978 book New Concepts in Technical Trading Systems . This book also includes the Relative Strength Index (RSI), Average True Range (ATR), and the Directional Movement Concept (ADX). Despite being developed before the computer age, Wilder's indicators have stood the test of time and remain extremely popular.


Parabolic SAR Calculation.


Calculation of SAR is complex with if/then variables that make it difficult to put in a spreadsheet. These examples will provide a general idea of how SAR is calculated. Because the formulas for rising and falling SAR are different, it is easier to divide the calculation into two parts. The first calculation covers rising SAR and the second covers falling SAR.


Rising SAR.


This calculation method is used on prices that are rising.


Rising SAR ---------- Prior SAR: The SAR value for the previous period. Extreme Point (EP): The highest high of the current uptrend. Acceleration Factor (AF): Starting at .02, AF increases by .02 each time the extreme point makes a new high. AF can reach a maximum of .20, no matter how long the uptrend extends. Current SAR = Prior SAR + Prior AF(Prior EP - Prior SAR) 13-Apr-10 SAR = 48.28 = 48.13 + .14(49.20 - 48.13) The Acceleration Factor is multiplied by the difference between the Extreme Point and the prior period's SAR. This is then added to the prior period's SAR. Note however that SAR can never be above the prior two periods' lows. Should SAR be above one of those lows, use the lowest of the two for SAR.


This table shows the calculated values for rising Parabolic SAR in the example chart below.


Falling SAR.


This calculation method is used on prices that are falling.


Falling SAR ----------- Prior SAR: The SAR value for the previous period. Extreme Point (EP): The lowest low of the current downtrend. Acceleration Factor (AF): Starting at .02, AF increases by .02 each time the extreme point makes a new low. AF can reach a maximum of .20, no matter how long the downtrend extends. Current SAR = Prior SAR - Prior AF(Prior SAR - Prior EP) 9-Feb-10 SAR = 43.56 = 43.84 - .16(43.84 - 42.07) The Acceleration Factor is multiplied by the difference between the Prior period's SAR and the Extreme Point. This is then subtracted from the prior period's SAR. Note that SAR can never be below the prior two periods' highs. Should SAR be below one of those highs, use the highest of the two for SAR.


This table shows the calculated values for falling Parabolic SAR in the example chart below.


Interpreting Parabolic SAR.


SAR follows price and can be considered a trend following indicator. Once a downtrend reverses and starts up, SAR follows prices like a trailing stop. The stop continuously rises as long as the uptrend remains in place. In other words, SAR never decreases in an uptrend and continuously protects profits as prices advance. The indicator acts as a guard against the propensity to lower a stop-loss. Once price stops rising and reverses below SAR, a downtrend starts, with SAR above the price. SAR follows prices lower like a trailing stop. The stop continuously falls as long as the downtrend extends. Because SAR never rises in a downtrend, it continuously protects profits on short positions.


Adjusting the Step Increment.


As shown in the spreadsheet example, the Step, also referred to as the Acceleration Factor (AF), is a multiplier that influences the rate-of-change in SAR. SharpCharts users can set the Step and the Maximum Step. The Step gradually increases as the trend extends until it reaches the maximum set by the user. The Step dictates the sensitivity of the SAR indicator.


SAR sensitivity can be decreased by decreasing the Step . A lower step moves SAR further from price, which makes a reversal less likely. Similarly, SAR sensitivity can be increased by increasing the step. A higher step moves SAR closer to the price action, which makes a reversal more likely. The indicator will reverse too often if the step is set too high. This will produce whipsaws and fail to capture the trend.


Chart 6 shows IBM with SAR (.01, .20). The step is .01 and the Maximum Step is .20. Chart 7 shows IBM with a higher Step (.03). SAR is more sensitive in chart 7 because there are more reversals. This is because the Step is higher in chart 7 (.03) than chart 6 (.01).


Adjusting the Maximum Step.


The sensitivity of the indicator can also be adjusted using the Maximum Step. While the Maximum Step can influence sensitivity, the Step carries more weight because it sets the incremental rate-of-increase as the trend develops. Also, note that increasing the Step ensures that the Maximum Step will be hit quicker when a trend develops. Chart 8 shows Best Buy (BBY) with a Maximum Step (.10), which is lower than the default setting (.20). This lower Maximum Step decreases the sensitivity of the indicator and produces fewer reversals. Notice how this setting caught a two-month downtrend and a subsequent two-month uptrend. Chart 9 shows BBY with a higher Maximum Step (.20). This higher reading produced extra reversals in early February and early April.


Conclusion.


The Parabolic SAR works best with trending securities, which occur roughly 30% of the time according to Wilder's estimates. This means the indicator will be prone to whipsaws over 50% of the time or when a security is not trending. After all, SAR is designed to catch the trend and follow it like a trailing stop. As with most indicators, the signal quality depends on the settings and the characteristics of the underlying security. The right settings combined with decent trends can produce a great trading system. The wrong settings will result in whipsaws, losses, and frustration. There is no golden rule or one-size-fits-all setting. Each security should be evaluated based on its own characteristics. Parabolic SAR should also be used in conjunction with other indicators and technical analysis techniques. For example, Wilder's Average Directional Index can be used to estimate the strength of the trend before considering signals.


Charting with the Parabolic SAR.


The Parabolic SAR overlay can be added to SharpCharts and ACP charts.


Using with SharpCharts.


The Parabolic SAR can be found as an Overlay in SharpCharts. The default parameters are 0.02 for the Starting Step and 0.20 for the Maximum Step. If you want the increment amount to be different than the starting step value, then you can add an optional third parameter to set the increment amount. As shown above, these can be changed to suit the characteristics of an individual security. The example below shows the indicator in pink with prices in black/white and the chart grid removed. This contrast makes it easier to compare the indicator with the price action of the underlying security.


For more details on the parameters used to configure Parabolic SAR overlays, please see our SharpCharts Parameter Reference in the Support Center.


Using with StockChartsACP.


This overlay can be added from the Chart Settings panel for your StockChartsACP chart. The Parabolic SAR can be overlaid on the security's price plot or on an indicator panel.


By default, the overlay uses 0.02 for the Step (increment amount) and 0.20 for the Maximum Step. If you want the starting step value to be different than the increment amount, then use the optional Initial Step field to set this value. These parameters can be adjusted to meet your technical analysis needs.


Scanning for Parabolic SAR.


StockCharts members can screen for stocks based on Parabolic SAR values. Below are some example scans that can be used for Parabolic SAR-based signals. Simply copy the scan text and paste it into the Scan Criteria box in the Advanced Scan Workbench.


Members can also set up alerts to notify them when a Parabolic SAR-based signal is triggered for a stock. Alerts use the same syntax as scans, so the sample scans below can be used as a starting point for setting up alerts as well. Simply copy the scan text and paste it into the Alert Criteria box in the Technical Alert Workbench.


Break Above Falling SAR.


This scan starts with stocks that have an average price of $10 or greater over the last three months and average volume greater than 40,000. The scan then filters for stocks that have a bullish SAR reversal (Parabolic SAR (.01,.20)). This scan is just meant as a starter for further refinement.


[type = stock] AND [country = US] AND [SMA(20,Volume) > 40000] AND [SMA(60,Close) > 10] AND [Yesterday's High Parabolic SAR(0.01,0.2)]


Break Below Rising SAR.


This scan starts with stocks that have an average price of $10 or greater over the last three months and average volume greater than 40,000. The scan then filters for stocks that have a bearish SAR reversal (Parabolic SAR (.01,.20)). This scan is just meant as a starter for further refinement.


[type = stock] AND [country = US] AND [SMA(20,Volume) > 40000] AND [SMA(60,Close) > 10] AND [Yesterday's Low > Yesterday's Parabolic SAR(0.01,0.2)] AND [Low.


For more details on the syntax to use for Parabolic SAR scans, please see our Scanning Indicator Reference in the Support Center.

Parabolic SAR 2

Parabolic SAR.


Parabolic SAR is a trend following indicator and is also popularly used among traders to set trailing stop losses.


The indicator was developed by Welles Wilder, who also developed and introduced the Average True Range, RSI, and Directional Movement (ADX) to the public in the late 1970s. All of these indicators remain widely popular today.


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Parabolic SAR was originally named “Parabolic Time/Price System” with SAR an acronym for “stop and reverse”. Technical analysts often refer to the indicator as simply “SAR” by itself.


Part of the indicator’s popularity stems from its easy interpretation. It is distinct in that instead of lines, ranges, or “clouds” it uses dots to convey information on the chart.


Dots that form underneath price and are rising in an upwardly sloping pattern suggest an uptrend. Dots that form above price and are falling in a downwardly sloping pattern suggest a downtrend. They may also represent the price where a trader could place a trailing stop, depending on whether SAR is used for this purpose.


Parabolic SAR plotted on a daily chart of the S&P 500.


Calculation of Parabolic SAR.


Parabolic SAR uses values of the previous period to come up with the new calculation. The calculation also differs regarding whether SAR is rising or falling.


Rising Parabolic SAR.


In general, we have three elements – the prior SAR, and two indicator-specific values known as the extreme point (EP) and acceleration factor (AF).


Prior SAR is simply the SAR value of the previous period.


Extreme point (EP) is the highest high of the prevailing uptrend.


Acceleration factor (AF), under the indicator’s default settings, starts at .02 and increases by .02 whenever the extreme point (EP) makes a new high. Its maximum value is .20 regardless of how many new highs are made by the extreme point.


The acceleration factor value – both the rate at which it can increase and its maximum value – can be adjusted in the settings of the charting platform.


In the SAR calculation formula, the current SAR value is calculated by taking the prior SAR and adding it to the product of the prior acceleration factor and difference between prior extreme point and prior SAR:


Current SAR = Prior SAR + Prior AF * (Prior EP – Prior SAR)


Falling Parabolic SAR.


The three elements stay the same – we use prior SAR, extreme point (EP), and acceleration factor (AR).


They are combined into the SAR formula very similarly, just that instead of adding the second part of the formula, it is subtracted instead.


Current SAR = Prior SAR – Prior AF * (Prior EP – Prior SAR)


Interpretation of Parabolic SAR.


The parabolic SAR effectively operates like a trailing stop-loss. In uptrends, the SAR works to gradually “lock in” profits (or pull the stop-loss closer to breakeven) on the basis of its position below price. Many traders use SAR for stop-loss purposes and is largely its primary use.


For example, if we’re trading the daily chart of the S&P 500 and are currently long the market, we could set our stop-loss equal to the price level dictated by the SAR.


Depending on the trend, the SAR can be near or far from price. On this particular 15-minute chart of the S&P 500, SAR is less than one point (or under 0.04%) away from price, making a triggering of the stop-loss fairly likely.


Overall, this stop-loss will continue upward so long as the uptrend is in place. Once price breaks below the SAR level in an uptrend or above SAR in a downtrend, the indicator will reverse.


Accordingly, we never see SAR decrease in an uptrend or increase in a downtrend and continuously shifts with each period to protect any profits made on a trade.


Parabolic SAR can also be used as a trend following indicator in its own right. Traders using it in this sense would normally bias their trades to the long side when parabolic SAR is at levels below price (i.e., in an uptrend). Similarly, they might bias their trades to the short side when parabolic SAR is at levels above price (i.e., in a downtrend). But like all indicators, it should not be used in isolation and used alongside other technical tools and modes of analysis.


Adjusting the Settings of Parabolic SAR.


The rate of change in parabolic SAR is dependent on the acceleration factor (AF), hence its designation as such. The settings of the AF can be adjusted, called the step.


The default for the step is .02. Its maximum value is 0.20 by default and is also adjustable.


SAR’s rate of change, sometimes called its sensitivity, can be altered by lowering the step. This works by increasing the distance between SAR and price. SAR reverses once price touches its level. Therefore, if SAR is further from price, a reversal in the indicator is less likely.


Take a look at this example of the daily chart of the S&P 500 using the standard settings (.02 step, .20 maximum).


And let’s compare this to different settings of a .01 step and .20 maximum.


We can see that the trend is less likely to shift back and forth.


Contrarily, SAR’s rate of change can be increased by increasing the step. This moves SAR closer to price, making a reversal in the indicator more likely. Here we have the settings of .04 in the step and .20 in the maximum.


We see a greater number of reversals and also the SAR lagging further from price.


Sensitivity also declines if we lower the maximum. If we reduce it from .20 to .04 we see that changes in trend are less likely. The maximum is more easily attained when set to lower levels. In this case, the calculation is less likely to change and we see less sensitivity. Moreover, SAR stays further from price.


What are the best settings?


Naturally, there is no correct answer to this. For those who want tighter stops to more easily protect profit or limit downside, having a higher step and higher maximum would be best.


For example, settings of .05 for the step and .40 for the maximum would produce fairly tight stops as represented by the level of the SAR dot and its proximity to price.


These settings would also be relevant for those who use parabolic SAR as a trend following indicator and prefer the indicator to have higher sensitivity and thus more frequent changes.


For those who want more accommodative stops to avoid getting stopped out prematurely and to allow “breathing room” in one’s trades, having a lower step and lower maximum would be appropriate.


In this case, settings of .01 for the step and .02 for the maximum would provide loose stops.


Those who use parabolic SAR for trend following might also prefer this setting to keep track of a broader view of the trend, rather than one that oscillates more frequently as with higher step and maximum values.


Conclusion.


Parabolic SAR is regularly used to track trends. It also serves as a guide for where traders should place their stop-loss to limit the downside and/or protect the profit associated with their trades. The progressive dot configuration of the indicator functions very similarly to the adjustment of a trailing stop.


The settings of the indicator can be adjusted from its step and maximum value of .02 and .20, respectively.


Those wanting to increase the sensitivity of the indicator – which gives rise to more frequent changes in the trend (as diagnosed by the SAR) and tighter trailing stops – should increase the step and maximum value.


Those wanting to decrease the sensitivity of the indicator – less frequent changes in the trend and looser trailing stops – should decrease the step and maximum value.


The settings should be evaluated on a security by security basis and in line with one’s trading preferences. There is, of course, no correct answer as to which are best. The default settings are naturally the most frequently used.


Like all indicators, is should never be used in isolation. Developing a complete trading system involves using multiple modes of analysis, from looking at price action and/or other technical indicators and fundamental analysis.

Parabolic SAR - An Introduction

Parabolic SAR - An Introduction.


In the market, it is crucial to spot the trend, but it is equally important to detect when the trend ends. Getting out of the trade is more difficult than entering the trade. In this blog, we will talk about one such technical indicator, the Parabolic SAR indicator, which helps in identifying when the trend ends.


The Parabolic SAR or Parabolic stop and reverse was developed by J. Welles Wilder. The Parabolic SAR is used by the traders to predict the direction of an asset as well as help in determining entry and exit points. In this article, we will go through the following points:


Parabolic SAR calculation How to trade with Parabolic SAR Trading strategy with Parabolic SAR in Python Pros and cons of Parabolic SAR.


The Parabolic SAR appears as a series of dots placed above or below the price mark as you can see in the chart.


The dots above the price level is considered as a downtrend. Conversely, the dots below the price level is considered as an uptrend. The change in the direction of dots indicates the potential change in the price direction. For instance, you can observe at the start that the dots are below the price level. When it flips above the price, it could signal a further decline in price. The trend is strong when there is a wide gap between price and dots as you can observe at the end of the chart. In the sideways market, there is frequent interaction between price and dots.


Parabolic SAR calculation.


The Parabolic SAR (PSAR) indicator uses:


Extreme highest and lowest price in the current trend Acceleration factor: Acceleration factor determines the sensitivity of the Parabolic SAR.


Default setting.


AF starts at 0.02 and increases by 0.02 each time the extreme point makes a new high/low. AF can reach a maximum of 0.2, no matter how long the trend extends.


Increasing the values of step and maximum step increases the sensitivity of the indicator, but it decreases its accuracy. Lowering the values of step and maximum step decrease the sensitivity of the indicator, but it improves its precision. We need to find a balance between these two values to generate quality signals. In our strategy, we will use values of (0.02,0.2)


Calculation of rising Parabolic SAR.


Current SAR = Previous SAR + Previous AF(Previous EP - Previous SAR)


Where, Previous SAR = Previous period SAR value EP = Highest high of the current uptrend AF = Acceleration factor.


Calculation of falling Parabolic SAR.


Current SAR = Previous SAR - Previous AF(Previous SAR - Previous EP)


where, Previous SAR = Previous period SAR value EP = Lowest low of the current downtrend AF = Acceleration Factor.


In our strategy, we will use the TA-Lib library (Python library for technical indicators) to calculate the Parabolic SAR values directly.


How to trade with the Parabolic SAR.


Trending Market.


The Parabolic SAR is best used when the market is trending; that is when the market has long rallies in either direction and have small corrections. It is advisable not to trade with the Parabolic SAR in a sideways market.


Higher time frames.


If the time frame is small, Parabolic SAR will generate too many signals, and it might offer contradictory signals. On higher time frames, the trade will move slowly, and this will avoid false signals as most of the market noise is eliminated.


Better to use as an exit indicator.


Parabolic SAR is used mostly as an exit indicator. Close buy position when price moves below the Parabolic SAR and close sell position when price moves above the Parabolic SAR. It also provides a stop loss level that moves closer to the market price regardless of the market direction.


Combine Parabolic SAR with other indicators.


Parabolic SAR is a lagging indicator because it follows the price, and with the help of other indicators, we will be able to generate quality signals. It can be combined with many indicators. However, It is important to note that the role of Parabolic SAR is to determine the direction of trend and change in the direction of the trend. Combining Parabolic SAR with the other trend following indicator is not that useful as it will provide two trend confirmation signals. In the strategy, we are using Ichimoku indicator with the Parabolic SAR. To know more about Ichimoku cloud, you can refer to this link. Parabolic SAR can be used to determine optimal entry and exit points and Ichimoku cloud provide potential current and future support and resistance points.


Trading strategy with Parabolic SAR in Python.


Now that you have an understanding of Parabolic SAR. Let’s implement the trading strategy in Python.


Import data.


Importing Amazon (AMZN) data from 01-Jan-2014 to 01-Oct-2022. The data is imported from yahoo finance.


# Import pandas import pandas as pd # Import yfinance import yfinance as yf # Import data from yahoo finance data = yf.download(tickers='AMZN', start='2014-01-01', end='2022-10-01') # Drop the NaN values data = data.dropna() data.head()


[*********************100%***********************] 1 of 1 downloaded.


Date Open High Low Close Adj Close Volume 2013-12-31 394.58 398.83 393.80 398.79 398.79 1996500 2014-01-02 398.80 399.36 394.02 397.97 397.97 2137800 2014-01-03 398.29 402.71 396.22 396.44 396.44 2210200 2014-01-06 395.85 397.00 388.42 393.63 393.63 3170600 2014-01-07 395.04 398.47 394.29 398.03 398.03 1916000.


# Import matplotlib import matplotlib.pyplot as plt plt.style.use('fast') # Plot the closing price data.Close.plot(figsize=(10,5)) plt.grid() plt.show()


Parabolic SAR.


Using SAR function from Ta-Lib library to calculate the parabolic. The input parameters are high price, low price, acceleration factor (AF), and maximum step.


As already discussed, acceleration factor increases by 0.02 each time the extreme point makes a new high/low, and it can reach a maximum of 0.2, no matter how long the uptrend/downtrend extends.


# Import talib import talib # Calculate parabolic sar data['SAR'] = talib.SAR(data.High, data.Low, acceleration=0.02, maximum=0.2)


# Plot Parabolic SAR with close price data[['Close', 'SAR']][:500].plot(figsize=(10,5)) plt.grid() plt.show()


Ichimoku Cloud.


The Ichimoku Cloud, also known as Ichimoku Kino Hyo consists of five plots and a cloud.


The default parameters of Ichimoku Cloud are 9, 26, 52, 26.


Tenkan-sen (Conversion Line): (9-period high + 9-period low)/2 Kijun-sen (Base Line): (26-period high + 26-period low)/2 Senkou Span A (Leading Span A): (Tenkan-sen + Kijun-sen)/2 Senkou Span B (Leading Span B): (52-period high + 52-period low)/2 Chikou Span (Lagging Span): Close plotted 26 days in the past.


# Calculate Tenkan-sen high 9 = data.High.rolling(9).max() low 9 = data.Low.rolling(9).min() data['tenkan sen line'] = (high 9 + low 9) /2 # Calculate Kijun-sen high 26 = data.High.rolling(26).max() low 26 = data.Low.rolling(26).min() data['kijun sen line'] = (high 26 + low 26) / 2 # Calculate Senkou Span A data['senkou spna A'] = ((data.tenkan sen line + data.kijun sen line) / 2).shift(26) # Calculate Senkou Span B high 52 = data.High.rolling(52).max() low 52 = data.High.rolling(52).min() data['senkou spna B'] = ((high 52 + low 52) / 2).shift(26) # Calculate Chikou Span B data['chikou span'] = data.Close.shift(-26)


data.head()


Date Open High Low Close Adj Close Volume SAR tenkan sen line kijun sen line senkou spna A senkou spna B chikou span 2013-12-31 394.58 398.83 393.80 398.79 398.79 1996500 NaN NaN NaN NaN NaN 361.08 2014-01-02 398.80 399.36 394.02 397.97 397.97 2137800 393.8000 NaN NaN NaN NaN 360.87 2014-01-03 398.29 402.71 396.22 396.44 396.44 2210200 393.9112 NaN NaN NaN NaN 361.79 2014-01-06 395.85 397.00 388.42 393.63 393.63 3170600 402.7100 NaN NaN NaN NaN 349.25 2014-01-07 395.04 398.47 394.29 398.03 398.03 1916000 402.7100 NaN NaN NaN NaN 357.20.


Plot komu Cloud.


Komu cloud is a space between Senkou Span A and Senkou Span B. The cloud edges provide potential current and future support and resistance points. We are plotting komu cloud with the closing price and parabolic SAR. We plot cloud in light green when Senko span A is greater than Senko span B. We plot cloud in light coral when Senko span B is greater than Senko span A.


# Plot closing price and parabolic SAR komu cloud = data[['Close','SAR']][:500].plot(figsize=(12, 7)) # Plot Komu cloud komu cloud.fill between(data.index[:500], data.senkou spna A[:500], data.senkou spna B[:500], where=data.senkou spna A[:500] >= data.senkou spna B[:500], color='lightgreen') komu cloud.fill between(data.index[:500], data.senkou spna A[:500], data.senkou spna B[:500], where=data.senkou spna A[:500]


Buy Signal.


We take the buy position when the price is above the Komu cloud and parabolic SAR is below the price.


data['signal'] = 0 data.loc[(data.Close > data.senkou spna A) & (data.Close > data.senkou spna B) & (data.Close > data.SAR), 'signal'] = 1.


Sell Signal.


We sell when the price is below the Komu cloud and parabolic SAR is above the price.


data.loc[(data.Close.


data['signal'].value counts()


0 1037 1 270 -1 140 Name: signal, dtype: int64.


Calculate Strategy Returns.


We calculate the daily returns. Then we calculate strategy returns by multiplying the daily returns with the previous day signal. Further we calculate the cumulative product of the strategy returns.


# Calculate daily returns daily returns = data.Close.pct change() # Calculate strategy returns strategy returns = daily returns *data['signal'].shift(1)


# Calculate cumulative returns (strategy returns+1).cumprod().plot(figsize=(10,5)) # Plot the strategy returns plt.xlabel('Date') plt.ylabel('Strategy Returns (%)') plt.grid() plt.show()


Summary of the trading strategy.


This is a straightforward strategy based on parabolic SAR and Ichimoku cloud. However, it generates good returns for over 5 years. But there are things which you need to take care during backtesting such as stop-loss, slippage. Now it’s your turn to tweak the code and make it more close to the live environment.


Pros and cons of Parabolic SAR.


The advantage of the Parabolic SAR is that it works best when there is a strong trend in the market. Also, in comparison to other trend indicators, it provides better exit signals. The major drawback is that when there is no trend or market is choppy, the dotted lines of Parabolic SAR continuously turnaround above or below the price. This is mostly lead to false signals.


Conclusion.


Thus, we have seen how to calculate Parabolic SAR as well as its application in trading. We have also understood the advantages and disadvantages of the Parabolic SAR indicator.


Do let us know if you loved the article and any other feedback in the comments below.


You can learn more about technical indicators and build your own trading strategies by enrolling in the Quantitative Trading Strategies and Models course on Quantra.


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Disclaimer: All data and information provided in this article are for informational purposes only. QuantInsti® makes no representations as to accuracy, completeness, currentness, suitability, or validity of any information in this article and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis.


File in the download: Parabolic SAR Python Code.

Parabolic SAR

Parabolic SAR.


The parabolic stop and reverse (SAR), also known as the stop and reversal system, is a technical indicator​ that can help spot the current trend direction, help with entering and exiting trades, and highlight potential reversals. Because it follows price movements, it can also be used as a trailing stop-loss​. This allows the trader to capture large profitable trends when they occur, providing an exit point when the price may be starting to reverse.


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What is parabolic SAR?


Parabolic SAR is a form of technical analysis​ that can be implemented for a comprehensive trading strategy, when analysing how to trade financial assets, such as indices, shares, commodities and currencies. In this article, we will discuss the pros and cons of the indicator, and look at how and when it should be used.


How is parabolic SAR calculated?


The parabolic SAR places dots above each price bar if the price is falling, and below each price bar if the price is rising. When the price passes through the dots, there is a potential trend reversal and the dots move to the other side. In this way, its most basic function is to help spot the current trend and signal when that trend direction may be changing.


The parabolic SAR indicator is complex to compute by hand, even though it was introduced in 1978 by J. Welles Wilder Jr. (who also developed the relative strength index), well before the widespread use of computers. The indicator is complex because it accelerates over time.


Parabolic SAR formula.


The formulas used are different if the SAR is rising on an uptrend (below price) versus falling on a downtrend (above price).


Rising SAR = Prior SAR + Prior AF (Prior HP – Prior SAR)


Falling SAR = Prior SAR – Prior AF (Prior SAR – Prior LP)


AF stands for acceleration factor, which has a default of 0.02 and increases by 0.02 each time a new high price is achieved in the current trend. This has a maximum of 0.20.


HP stands for high point, which is the highest high in a current uptrend. Similarly, LP stands for low point, which is the lowest low in a current downtrend.


Thankfully, you will not need to calculate the parabolic SAR for each period, as our online trading platform, Next Generation, automatically calculates the parabolic SAR algorithm in just a few clicks when applied to a trading chart.


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How to use the parabolic SAR indicator.


The calculation shows that the further a trend moves in one direction, the faster the parabolic SAR will accelerate to catch up to it. This is beneficial in that the indicator provides room for the price to move higher (or lower), yet the further the price moves in one direction, the less room the indicator gives it, because a price reversal becomes more likely. Once the price drops below the parabolic SAR, the move may be complete, or at least entering a temporary pullback stage.


The parabolic SAR can be used in several ways in terms of strategies and can be applied to all financial markets ​​. Its most basic functions are the following:


To find a buy point when the price moves above the dotted line, and the dots move below. To find a sell or short point when the price moves below the dotted line, and the dots move above. As a trailing stop loss. The parabolic SAR keeps you in a trade until a signal in the opposite direction occurs. To indicate whether the price is recently rising or falling, and when a reversal may occur.


Combined with other rules and analysis, the parabolic SAR can form part of a robust trading strategy​​.


Parabolic SAR strategies.


Parabolic SAR breakout.


The parabolic SAR is an indicator that provides constant breakouts. Each time the parabolic SAR flips to the other side of the price, this could be considered a trend reversal or trend break. Therefore, one of the simplest breakout strategies is to wait for a parabolic SAR trade signal to enter in the trending direction following a pullback.


Let’s assume, for example, that the trend is up and the price is making overall upward progress. Once the parabolic SAR flips on top of the price, this means it is now moving down, entering a pullback. You could consider placing a stop-loss order​ below the swing low that formed prior to the entry signal in order to avoid losses.


Below is an example using an Apple stock chart. The price started rising, and the green boxes mark the start and end (and thus the profitability) of each trade that occurred during the uptrend. The current trade is ongoing, but already a small profit is locked in, since the trade will be exited if it drops below the indicator. Buy entries occur as the price moves above the dots in the overall uptrend.


The concept is the same for a downtrend. When the price is declining, the parabolic SAR is above the price. When the parabolic SAR drops below the price, this indicates a pullback to the upside. A parabolic SAR breakout strategy works best in assets that are strongly trending. If the price is moving in no apparent direction, then it will seesaw across the parabolic SAR, resulting in multiple unprofitable trades. You should make sure you have the appropriate risk management​​ measures in place.


Seamlessly open and close trades, track your progress and set up alerts.


Double parabolic SAR strategy.


A double parabolic SAR strategy uses two timeframes. First, a longer-term timeframe shows the trend direction based on the direction of the parabolic SAR. Once the long-term trend direction is determined, trades are taken on a shorter timeframe, but only in the direction of the longer-term trend. For example, the daily chart of gold with a parabolic SAR attached shows that price is currently in an uptrend. The price is on top of the indicator as of 4 August.


Then, when you drop down to the hourly chart (you can use any two timeframes, as long as one is longer than the other), and then only take new trade signals in the longer-term direction, the chart below shows the result.


If the uptrend on the daily chart was spotted earlier, then additional trades could well have been made. Not all were profitable, but some were very profitable. The profitability of trades is the difference between the entry and exit, highlighted by the green boxes. ​This double parabolic SAR strategy is beneficial because it only takes trades in the direction of the longer-term trend, which are more powerful than short-term trends.


Parabolic SAR forex trading strategy.


The parabolic SAR works the same in forex trading​​ as it does in other markets, such as stocks or commodities. Any of the strategies discussed above can be applied to the forex market. As mentioned earlier, the indicator works best when there are large price movements. On the left side of the EUR/USD daily chart, the price action​​ is choppy. The price whipsaws back and forth across the indicator, resulting in multiple losing or small-profit trades.


The much bigger profits come when there are big trending moves. A big move is any move that would have resulted in a substantial profit based on the parabolic SAR basic entry and exit trading signals.


Parabolic SAR scalping strategy.


Scalping is a short-term trading strategy where the trader enters and exits trades as quickly as possible, opening multiple positions within a day. Scalpers​​ often use a one-minute chart, and our online trading platform also allows you to trade with one, five, 10, and 30-second charts as well.


Any of the strategies discussed can be used for a scalping strategy. As an example, let’s use the double parabolic SAR strategy for a forex scalping trade​​. The longer timeframe is the 15 minute chart, and the lower timeframe is the one minute. From the 15-minute EUR/JPY chart, we can see that the trend is continually declining, based on the most recent parabolic SAR reading, for more than two hours.


This provides the trade direction on the one-minute chart​​. Only short entries are taken when the price drops below the indicator. The short trades are exited when the price moves above the indicator.


If the uptrend​ on the daily chart was spotted earlier, then additional trades could well have been made. Not all were profitable, but some were very profitable. The profitability of trades is the difference between the entry and exit, highlighted by the green boxes. ​This double parabolic SAR strategy is beneficial because it only takes trades in the direction of the longer-term trend, which are more powerful than short-term trends.


How to use a parabolic SAR trading system.


As mentioned, the parabolic SAR indicator is available on our Next Generation trading platform. To use the parabolic SAR and to start practising some of the strategies mentioned, register for a live account now. You can also register for a demo account to practise on our parabolic SAR trading system using virtual funds.


You can choose a financial product to trade along the left side of the platform, within the commodities, currencies, indices, shares, and treasuries markets. Its chart will appear on the right, and along the bottom of the chart, there is a tab for “Technicals”. Scroll to the right until you see “Parabolic”. Click to apply it to the chart. The formula will be calculated automatically.


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Parabolic SAR indicator settings.


To change the technical indicator settings, hover your cursor over the chart and click on the indicator name in the upper left of the chart. This will bring up the parabolic SAR settings. Adjust as needed.


There are two setting on the indicator: Acceleration Factor (AF) and Maximum Acceleration (MA). By default, these are 0.02 and 0.2. Increasing the Acceleration Factor means the indicator will more closely track the price, leaving less room between the indicator and price. This means more trade signals and reversals will be identified on the chart. Decreasing the Acceleration Factor means that the indicator will move slower, leaving more room between the price and indicator. Fewer reversals will occur.


The Maximum Acceleration works the same in a way, but to a much lesser degree. The MA caps how quickly the indicator can accelerate during a strong price move. Changes in this setting will have less impact than changing the AF.


Short-term traders that want to enter and exit positions quickly may opt for a higher AF, which means that even small reversals will close them out of a trade. Longer-term traders that want to hold their positions may decrease the AF. This will result in the price needing to make bigger moves to cause a reversal, and thus reversals and trade signals will occur less often.


Parabolic SAR indicator on MT4.


The parabolic SAR is also available for aiding trading strategies on the international platform, MetaTrader 4, which is hosted through our software. The indicator can be adjusted on MT4 in the same way as our own platform, but the names of the variables are different. On MT4, “Step” is the equivalent of the Acceleration Factor, which has a default setting of 0.02. Maximum is the Maximum Acceleration, and it has a similar default value of 0.2. Learn more about the platform by registering for a free MT4 account.


Parabolic SAR and stop losses.


The parabolic SAR provides several basic functions that include providing trend direction, entry and exit signals, and acting as a trailing stop-loss​​. These basic functions can be further enhanced into a strategy by adding some additional rules. The breakout strategy requires isolating the overall visual trend direction. The double parabolic SAR strategy makes this approach more systemic by using the indicator direction on a longer-term timeframe as the overall trend direction. This stipulates in which direction to trade on the lower timeframe.


To complete all these strategies, the risk on each trade must be managed, and you should avoid taking a position size that is too large for your account. By using a stop-loss order, you can prevent capital loss if the price does not move in a favourable direction.


If you wait for a trade signal and candle or price bar to close before entering, then the dots will flip sides and that dot can be used as a stop loss point. However, sometimes the dot will be far away at the start of a trend, or you may not want to wait for a candle close before taking a trade signal. In these cases, you should consider placing a stop-loss below the recent swing low if going long, or above a recent swing high if going short. Two cents or two pips (percentages in point)​​ above the swing or below the swing low is adequate. This final step makes sure that the risk is controlled, while the parabolic SAR takes care of locking in profit if the price moves favourably.

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