Trading SPY 30-Minute Bars With SAR, Part 1 by Dennis Meyers, PhD
We’ve all heard of the parabolic SAR indicator and know how to use it. Here’s a different perspective that looks at it in terms of shape, slope, and speed.
The parabolic stop-and-reversal (SAR) indicator was introduced by J. Welles Wilder in New Concepts In Technical Trading Systems. The SAR is a trend-following indicator that is always long or short the market. This indicator is now standard on all modern technical analysis software. The SAR can be applied to any bar chart such as monthly, weekly, daily, hourly, or even point & figure charts.
The SAR creates a trailing stop that is at first far enough away from the initial buy price so that price retracements in the early stages of the trend do not drop below the trailing stop price and stop you out of your position. As the price trend matures, the trailing stop moves closer and closer at an accelerating rate to recent local lows of the current price, until the stop is penetrated by an adverse price movement and a sell signal is given (the opposite logic applies for a sell signal)...