parabolic-sar-example.png 👉Short position: A short position is when a trader sells a security in the hope of buying it back at a lower price in the future, thereby making a profit. 👉Long position: A long position is when a trader buys a security in the hope of selling it at a higher price in the future, thereby making a profit. 👉Stop sell order: A stop sell order is an instruction to sell a security once it reaches a certain price level. It is used to limit losses in a long position or to profit from a short position. 👉Stop buy order: A stop buy order is an instruction to buy a security once it reaches a certain price level. It is used to limit losses in a short position or to profit from a long position. 👉Parabolic SAR: Parabolic SAR (Stop and Reverse) is a technical indicator that is used to determine the direction of an asset\u0027s price movement and to provide entry and exit signals for traders. The SAR indicator is calculated based on the asset\u0027s previous highs or lows, and is plotted as a series of dots above or below the asset\u0027s price. 💥To calculate the Parabolic SAR in an uptrend, the SAR for the previous day is compared to the current day\u0027s low. If the current day\u0027s low is lower than the SAR, the SAR is adjusted to the current day\u0027s low. The SAR is then adjusted upwards based on a predetermined acceleration factor. 💥To calculate the Parabolic SAR in a downtrend, the SAR for the previous day is compared to the current day\u0027s high. If the current day\u0027s high is higher than the SAR, the SAR is adjusted to the current day\u0027s high. The SAR is then adjusted downwards based on a predetermined acceleration factor. 💥The Parabolic system is a method that uses averages, specifically another moving average invented by J. Welles Wilder. This system provides a rhythm to enter or exit the market based on the comparison between the stock price and the average price of the stock as a signal. 💥However, the average price calculated from this parabolic time/price system is based on exponential moving average principles, known specifically as the stop and reverse price (or SAR for short). It is still different in some respects from the moving average, despite being exponential type. 💥Now, let\u0027s focus on the calculated SAR value. We want traders to think of this SAR value as the price that represents it, like a way to limit the risks that can be accepted. The reason for this is that if the stock price drops more than the SAR, it indicates that the past uptrend is over and the stock is ready to be sold. This is because the trend in the stock price has changed to a downward trend. 💥On the other hand, if the stock price has risen above the SAR at any point, and the trader does not already hold the stock, or has just sold it, there may be a missed opportunity to profit. This signal indicates that the downtrend is over, and it is essential to buy back in time before the price rises any further. 💥However, before delving into SAR calculations, it is essential that traders understand four more terms: long position, short position, stop buy order, and stop sell order. Without understanding these terms, traders may not grasp the principles of SAR. 💥The term \"long position\" refers to buying stocks and holding onto them until it is the right time to sell, or until the upward trend in the stock\u0027s movement ends. On the other hand, a short position involves selling the stock and waiting for the right time to buy back. Why sell in the first place? Traders sell because they predict that the stock price may decline. By selling now, they can buy it back when the trend has ended, and potentially at a lower cost. 💥Moving on to the terms \"stop buy order\" and \"stop sell order,\" these are used to limit risks in case the stock price does not behave as expected. For example, consider a scenario where a trader believes that the stock price will decline and sells their shares, hoping to buy them back later at a lower price. However, if the price does not decline as expected and instead rebounds, the trader could miss out on a potential profit and incur an opportunity cost. To avoid this, the trader can set a predetermined price to buy back the shares, which is known as a \"stop buy order.\" 💥Similarly, suppose a trader expects the stock price to rise and buys shares with the intention of selling them when the price increases. If the price instead falls, the trader can set a predetermined price to sell the shares and limit their losses. This is known as a \"stop sell order.\" By having these prices in mind, traders can manage their risks and make timely decisions to enter or exit the market. Stop-Limit-Order-Main-Image.jpg Stop and Reverse (SAR) 👉Some traders would like to know how SAR is calculated or obtained. In principle, the first SAR value is equal to the Extreme Price (EP) of the position that was just closed, which could be the highest or lowest price, depending on the case. To determine whether to use the highest or lowest price, traders need to first distinguish the price trend as an uptrend or a downtrend. Let\u0027s first explain the calculation for an uptrend. Uptrend In an uptrend, the first SAR is equal to the lowest price. SAR on day 2 or later will be calculated or adjusted according to the equation below. SAR1 = Previous Low SARt= = SARt-1 + AF(H - SARt-1) provided that SARt = exponential moving average, which in this case acts as support, so if the stock price moves below the SARt value, a sell signal is generated. SARt-1 = SARt at time t-1 AF = Acceleration factor (or exponential smoothing constant) which starts at .02 and increases by .02 increments as higher highs occur. If the price does not make a new high during a long position, the AF value will remain unchanged from the previous value. H = the highest price in a long position (opened by stop buy order), the value of H will change when a new high is formed. Downtrend In case of a downtrend (negative side), the initial SAR is equal to the highest price of the recently closed long position. SAR1 = PreviousHigh SARt = SARt-1 - AF(L-SARt-1) provided that SARt = exponential moving average, which in this case acts as resistance, so if the stock price moves through SARt up, it is a buy signal. SARt-1 = SARt at time t- 1 AF = Acceleration factor (or exponential smoothing constant) which starts at .02 and increases gradually by .02 as a lower low occurs. If the price does not make a new low during a short position, the AF value will remain unchanged from the previous value. However, the AF value in this case will be limited to 0.2, as in the case of Uptrend. L = the lowest price during a short position (opened by the stop sell order), this value of L will change when a new lowest price is formed. 💥💥Now, it is expected that traders know enough. (or even more confused) where does the SAR value come from? However, nowadays there are programs that can plot SAR values at the touch of a finger. Which helps to shorten the set time And don\u0027t have to have a headache with the above formula because the important points that traders want to know Probably more of a trading signal, right? But given in order to obtain It\u0027s only more complete in the content!