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The Parabolic System (SAR)

forex_notes_buttonThe parabolic forex trading system is a stop-loss system based on price and time designed to overcome disadvantages of the other trend-following systems.

The name of the system is derived from its parabolic shape(quadratic function in mathematics) which follows the price gyrations. On the chart below it is represented by a pieces of dotted lines. When the parabola is placed under the price, it suggests a long position.

Conversely, when the parabola is placed above the price, it indicates a short position. The parabolic system can be used with oscillators. Note that SAR stands for stop and reverse. The stop moves daily in the direction of the new trend.

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The built-in acceleration model pushes the SAR towards the currency price. If the new trend fails, the SAR signal will be generated.

The Parabolic SAR crossover produces good quality buy and sell signals in the markets characterized by strong trends however, it may whipsaw during non-trending, sideways phases.

See also Parabolic SAR Forex Trading Strategy