What is a parabolic indicator?
The parabolic indicator is a technique that is used to try to find trends in the whole market or specific security. Sometimes it is known as a parabolic SAR, which is worth stopping and back. It works on the principle that the longer the trend continues, the more likely it is to end.
j. Welles Wilder Jr. It is usually attributed as the creator of the parabolic indicator. Perhaps surprisingly, he was a machine engineer rather than an economist. This means that some of its theories are based on rational samples more than human behavior. While some prices can be self -service, it will eventually die out if the basic cause continues to be reflected. If this cause is a one -time event, as is happening in many cases, the effect will eventually disappear.
The use of the technique includes a calculation of the value known as the parabolic SAR in accordance with the monitoring of the studied price. This means that if the analyst uses daily prices for security, SAR also calculates every day. Calculation SAR includes formula, ktEr is taking into account the most extreme point achieved in the current trend, and how many times a new extreme point is reached. The extreme point is the new high price if the price is pointing up and the low price if the price is pointing down. The SAR formula means that today's market data is used to calculate SAR for tomorrow.
Analyst using a parabolic indicator draws SAR movements along with the price of the stock or market. The theory is that when shares grow, SAR will be below the market price; When stocks are falling, SAR will be above the market price. The theory also says that the closer Sar Moves at the price, the more likely the trend in the near future turns. An analyst who believes that the theory will use this information to assess the best time to buy or sell stocks.
One established restriction of the parabolic indicator is that trends take time to become introduction. During this period, prices can move in a less predictable way, known as the effect of the whip. Wilder recommended that people who watchThey used their theory, used other evaluation tools to make sure that the trend was set and gathered momentum before they decide on the basis of SAR.