system is a method that uses averages. Use another moving average
Invented by J. Welles Wilder, this system provides 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 even based on exponential moving average
principles (of course! But the average price in this case) known specifically as the stop and reverse price (or SAR
for short), is still different in some respects from the moving average
. The exponential type that used to be said about the moving average
, which can be seen when substituting the values into the calculation formula.
But now I want to understand about the calculated SAR
value first. We would like traders
to look at this SAR
value as the price that represents it. Like to limit the risks that can be accepted The reason for that is because If the stock price has dropped more than the SAR
when, it indicates that The past uptrend
is over and the stock is ready to be sold because the trend in the stock price changed to a downward.
On the other hand, if the stock price has risen higher than the SAR
at any time and the trader
does not yet have the stock in hand. Or just sold out of stock There may be a chance to miss making a profit from here. Because of such a signal It is a signal that indicates that The downtrend
is over, so you'll have to buy back in time before the price rises any further.
However, before moving into SAR
calculations, it is essential that traders know 4 more terms, which are long position
, short position
, stop buy order
and stop sell order
. It may cause traders
to not be clear on the principles of SAR
, so we would like traders
to understand these terms first.
The word long position
is the easiest to say. Buying stocks and reaching that stock, why keep it? Then sell it when the time is right or when the trend in the upward movement is over, while the short position
is the opposite case of long position
, that is, sell the stock and wait for the time to buy back. The next question is why did you sell it? The reason for selling is due to traders
predicted that the stock price might decline. So if selling now Then go buy it back when the trend has ended. At least for one thing, it should make the cost cheaper.
As for the words stop buy order
and stop sell order
, it limits the risk in the event that the stock price Not as traders
expected. An example of a stop buy order
. The stock price will weaken further. Therefore sold the shares in hand, expecting to return to buy them back later, but it appears that the share price did not go as the traders
thought above. The price has definitely rebounded! If the trader
does not prepare the price in case the stock rebounds will waste things in vain Including having an opportunity cost incurred. But if preparing a price to buy back those shares to prevent such cases will make that trader
can limit the risk and had the shares back into their hands in a timely manner which the price that is prepared in the mind of the trader
is a stop buy order
For an example of a stop sell order
, for example, a trader expects The stock price will rise. Therefore jumping in to buy, hoping to be able to sell when the price rises But that was not the case. The stock price pushed it down. Which if the trader
is not prepared must be attached to stocks inevitably But if the trader
The selling price has been prepared in mind to prevent such cases. Will make traders
at least flee or get out of the market in time The price that I have prepared in my mind is a stop sell order
.Stop And Reverse (SAR)
Now, 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 may be the highest price. Or lowest price Well, depending on the case, in which case? To use the highest price Or is there any case? To use the lowest price! to use the highest price Or the lowest price First of all! Ask traders
to first distinguish the price trend into an uptrend
) and a downtrend
, which we will explain to the uptrend
In the case of an uptrend
(positive side), the first SAR
is equal to the lowest price. SAR
on day 2 or later SAR
will be calculated or adjusted according to the equation below.
SAR1 = Previous Lowprovided that
SARt= = SARt-1 + AF(H - SARt-1)
- 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.
In case of a downtrend
(negative side), the initial SAR
is equal to the highest price of the recently closed long position
SAR1 = PreviousHighprovided that
SARt = SARt-1 - AF(L-SARt-1)
- 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't 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's only more complete in the content!