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25 Сентябрь 2008

Parabolic SAR - Market trend analysis tool

Of course, every time there is a failed attempt to use a tool of technical analysis, a trader starts to think, but not thoroughly examine only whether any of them to get maximum results. And there is truth, because mortgage trading success - is a thorough knowledge of the work of any instrument, so now we will try to become clear and accessible language to explain the theory of the origin and application of technical indicators - parabolic system (Parabolic SAR).


Parabolic SAR is a direct analogy with the work of moving averages. This indicator also follows the trend as moving average. All the difference is that the parabolic system works much faster in terms of following the price range. In doing so, Parabolic SAR follows the path of prices. It applies directly to the schedule together with the price. If the indicator is located below the price range, the trend - bull, if the indicator is above the price range - bearish.

The change of direction indicator happens if the price range will cross the line indicator. If that happens, the value indicator of change in the opposite direction from his current position. In this case, the new value, which will begin the countdown will price extremes of the previous time interval. Usually when a turn technical indicator is happening fracture the current trend, and it is changing or the opposite, either from the side trend.

Indicator value is not underestimated, because when properly configured, all of it can be quite a good signal for opening or closing positions. For example, if the drop in the price range below the Parabolic SAR, it will be interpreted as the beginning of bear trend, if the increasing price range above the line indicator Parabolic SAR, it will be interpreted as a signal for opening long positions.

In order to clearly understand the principle of technical indicator Parabolic SAR should be well enough to understand in detail, which is based on this indicator. Parabolic SAR was originally designed as a system that would allow the market to determine the point spread. The creator of this system Uels Wilder had an impact of price range in which the system performs a turn. Figure 1 provided a graphic representation, where the parabolic system. As you can see the name of the bar speaks for itself. A number of points form a single line, which in turn looks like a parabola. Also noted the similarity, which is characteristic of parabolic system with a trend line.

Parabolic SAR

Fig. 1

The first thing to do at the beginning of a parabolic system - that define the starting point position. Unveiling the start position can be made on various criteria. One of them, which was developed by the creator of parabolic system, said the need to find substantial Extrema price. The whole nuance of the formula Parabolic SAR in determining the trend, as this calculation is done for several days, with which began the countdown. In the case of forming during the first few days of upward movement, the act will be interpreted formula parabolic system, as the bearish trend. Accordingly, if during the first few days there is movement down, the formula parabolic system such action would be interpreted as a bearish trend. It should take into account a nuance with Parabolic SAR. For the correct definition of a parabolic system, the trend is to identify the number of data points. With insufficient including the definition of long-term trend may be difficult. Therefore, in order to work is identified with the number of such outlets.

As calculated parabolic system

The formula for opening long positions:

SAR (e) = AF * (Max (e - 1) - SAR (e - 1)) + SAR (e - 1)

The formula for opening short positions

SAR (e) = AF * (LOW (e - 1) - SAR (e - 1)) - SAR (e - 1)

Where:

SAR (e) - the value indicator of the current SAR plug
AF - accelerating factor
Max (e-1) - the maximum price for the preceding period of time
Min (e - 1) - the minimum price for the preceding period of time
SAR (e - 1) - value indicator SAR at the previous plug

Meaning SAR will raise in case the price value of the current candle will be more than the price value of the previous candle. At the same time will increase in AF, which in turn lead to a narrowing of the line indicator and prices.

When you trade for parabolic system should take into account many factors that influence the work of an indicator. In particular, the high volatility of the market parabolic system can give crash. This occurs because the line points indicator is close to price range. Hence the conclusion that the majority of trend indicators, such as moving average, etc. It is that the most reliable use of parabolic system and the receipt of the indicator signals is loyal to use it in conjunction with other elements of technical analysis that would filter his testimony.

The creator of parabolic system Wilder offered as such filters use DMI - the index direction of travel. This indicator is intended to analyze the direction of price and power of this movement. Especially rezultativen this indicator for commercial systems based on the trend trade. This is because of its ability to draw a clear distinction between trends in their place.

Currently, there are many strategies based on the use of parabolic system. For example, a simple trading system based on the use of three moving averages with different parameters and the parabolic system, where Parabolic SAR is used to confirm the opening position. Unfortunately, any more specific recommendations to not be possible because the selection of tools to the indicator - a purely personal matter.