Parabolic SAR is one of the favourite forex indicator used in Technical Analysis. it’s easy to use and understand. You will need this indicator to find trends in the market price. It can be seen as trailing stop-loss based on the prices tend to stay within a parabolic curve during a strong trend.

The concept is based on the idea that time is an enemy, and unless a security can continue to generate more profits over time, it should be liquidated. The indicator is generally good in the direction of markets, but also offers “whipsaws” in non-trending, sideways phases. A parable below the price is generally bullish, while a parable is usually on bearish.

From the chart above, the Parabolic SAR showed on the red dot, it will follow the price’s trend. when the trend is about to over, it will touch the price line and will appear on the opposite direction.

The Parabolic SAR calculated independently for almost every trend in the price. If the price on an upward trend, the SAR is displayed under the price and converge upwards. Also on a downward trend, the SAR appears on the price and down converges.

The closing price level is measured like this (for short positions):

SARi = (Lowi-1 - SARi-1) * AF - SARi-1.

The closing price level is measured like this (for long positions):

SARi = (Highi-1 - SARi-1) * AF + SARi-1.

Herein Highi-1 - the highest value of the price in the previous period, Lowi-1 - the lowest value of the price in the previous period, SARi-1 - the value of SAR for the previous period.