It is one of the most reliable momentum indicators available in trading. For traders, the Parabolic SAR can assist them in predicting reversals both in the bearish and the bullish direction and determining if markets will continue to move in the same direction. When it comes to timing signals and steering clear of erroneous ones, the indicator can be useful for traders. Trend-following indicators such as the PSAR are useful since they closely track the market price. Trailing stop loss is how standard moving averages (SAR) normally function. For as long as the upswing continues, the SAR dots remain below the price and continue to rise.

The PSAR has several properties that make it an excellent all-around indicator. J. Welles Wilder Jr., the same analyst who established the Relative Strength Index (RSI) oscillator, was the one who initially applied it. Additionally, PSAR is renowned for its versatility, as it can be used in a wide range of markets and time frames.

The Parabolic Time/Price System indicator was an integral part of the PSAR approach a long time ago. SAR stands for the points at which traders must enter trading with long positions and leave deals with short ones and vice versa. With its present name, it can predict market reversals, trend continuation, and even breakouts. The indicator is relatively easy to understand and even easier to install on a charting program of your choosing.

Calculation of PSAR

It is important to note that the indicator shows both stops and reverse levels. The following is the Parabolic SAR formula used to arrive at these results:

It is SARCURRENT+AFxSARNEW = SARNEW (EPCURRENT – SARCURRENT)

The following are the definitions for the formula terms:

Each time a new high is reached (for long positions) or a new low is reached (for short positions), the Acceleration Factor (AF) increases by a predetermined amount. Starting with a value of 0.02, Wilder advocated that the AF value should grow by 0.02 every two steps until it reached a maximum of 2.0.

EP is an acronym for Extreme Point, referring to the highest or lowest price observed during the current trend. For a trending market, the PSAR indicator curve provides a guide. According to Wilder, markets with strong trends are likely to stay inside the boundaries of the chart’s curve. As a result, if the price fails to achieve this and instead bursts through the curve, the trend may have exhausted its reserves. The best thing to do in such situations is to come to a halt and reverse your direction.

If you are interested in learning more about this indicator and its functions, you should familiarize yourself with its calculations.

Remember that while knowing the numbers is helpful, you do not have to worry about doing the math yourself! As a result of the trading platform handling its computations for both MetaTrader 4 and MetaTrader 5.

How it is used

The PSAR indicator is one of the potent ones available today. However, does this imply that its implementation will be as challenging? Not at all. PSAR is a straightforward method for predicting the market, and it is easy to implement.

The indicator may identify the market’s current trend and provide traders with suitable entry and exit opportunities. There is a series of dots above and below a price when applied (candlesticks). A dot below the candlestick indicates an upward trend, whereas a dot above the candlestick suggests a downward trend.

Stop-loss orders can also be placed via the PSAR. It is more like a trailing stop, where traders link their stop-loss price with the SAR dots when the price movement rises or declines. As a result, dealers can secure their gains before the market turns the other way.

When Should Crypto Traders Use PSAR?

Understanding and using the PSAR indicator at the right time can yield significant rewards. This indicator is a favorite of crypto analysts because of its compatibility with the market.

Traders widely misunderstand the PSAR indicator as a universally applicable tool. If a market has a strong trend, the indicator is most effective. An outstanding alternative for technical analysts, the PSAR’s longevity in crypto markets makes it an excellent tool.

How to Use PSAR Indicator in Meta Trade

By default, this indicator is included in both MetaTrader 4 and MT5, so you can start using it as soon as your trading platform has been downloaded and installed.

Both MT4 and MT5 have a “Navigator” window that you can access by clicking on the left side of the screen. The indicator can be found in the ‘Indicators’ folder, a Trend subfolder. When you double-click the icon, a dialogue box will appear, allowing you to customize the Parabolic SAR settings.

PSAR and Moving Average: The Perfect Match?

As one of the most basic and reliable indicators, the moving average (MA) has been around for a long. In some cases, it can even be utilized to spot market reversals and changes in trends. As a result, we may conclude that it performs similarly to the PSAR in terms of functionality.

At the University of Houston-Victoria, researchers experimented to determine how accurate each of these indications is. PSAR had a 95 percent statistical significance, but the simple moving average had a statistical significance of just 50 percent. This is because traders have begun to use a technique that combines both indicators. Unexpectedly, combining it with this approach yielded greater results than only with PSAR.

Even though each market is unique, they follow a general trend. To employ PSAR in a trending market, a trader needs to know whether buyers or sellers dominate the market. It has also been found that THIS INDICATOR signals have lower-than-average accuracy when used in consolidating or sideways markets. As a result, it is recommended that you use the MA and the PSAR to filter out any erroneous signals generated by the trend.