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Parabolic Stop and Reverse

Discussion in 'Technical Analysis' started by spreadbet, Apr 30, 2003.

Hi all

Can anyone tell me where to find an in depth description of PSR, I know how to use it but I am trying to find the mathematical calculation and perhaps any explanation of the mathematical model.

Stay Lucky

try stockcharts.com

4. dougcs

I use it for exits and have the Tradestation code if you want it.

Doug S

5. Bob111

i have simular question-trying to code it in VB-how to start?
tradesttion help and others assume that you on first bar of calculation in some position-either shor or long and goes from there. but how to start if you not on market at all? rest of it is simple, but for me-calculation first parabolic point is a problem. i was trying to figure out how SAR for second bar in Tradestation chart been calculated and still have no idea.
hope someone can help me too

here is explanation for first guy from omega-

The concept draws on the idea that time is an enemy, and unless a trade can continue to generate more profits over time it should be liquidated. Thus, the Parabolic Time/Price Strategy rides the trend until the SAR (stop and reversal) price is penetrated. Then the existing position is closed out and the reverse position is opened.

The expression âparabolicâ derives from the shape of the curve the stops create as the onscreen trading cues appear on the chart.

To calculate the function, we must first find an extreme reference point. On the long side this price is usually the lowest price recorded during the previous closed short position. On the short side this extreme price is usually the highest price recorded during the previous closed out long position.

In practice, however, you wonât have an extreme reference point for the very first trade as there are no previous trades. To account for this, the function uses the High or Low of the previous bar (depending on whether the position is long or short) before the first trade.

For long-side sells and short-side buy, on the second day and thereafter, the SAR is adjusted as follows:

SARb = SARp +AF(H-SARp)

SARs = SARp +AF(L-SARp)

â¦where

SARb is the long-side sell stop price at which you sell to exit the long position and establish a short position.

SARs is the short-side buy stop at which you buy to close the short position and establish a long position.

SARp is the previous barâs SAR

AF is an acceleration factor that begins at .02 for the bar after the initial SAR buy stop order opens the long trade and is increased by .02 each period that price rises to the highest level (H) since the current long trade was opened. For periods when price does not set a new High within the current long trade time duration, AF is left unchanged from its previous periodâs level.

H is a new highest price since the current long trade was opened on a stop buy order.

L is a new lowest price since the current short trade was opened on a stop sell order.

The value returned by the Parabolic function is the SAR value described above.

Reference

Wilder, Welles, Jr. New Concepts in Technical Trading Systems. Trend Research. McLeansville, NC

hope it helps...

Never liked Parabolic Stop and Reverse ... too many whipsaws

Many thanks to all who replied, especially Bob111 thats great

All the best

8. TSOKAKIS

There is an excellent step by step SAR calculation at
http://www.amibroker.com/library/detail.php?id=268
As for the application, SAR is excellent with smoothed trend detectors.
I mainly use the (CMO, SAR) system for the N100 market with very interesting results.

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9. Bob111

got it finally..

thank you!

Is this where we put in our two cents? I have used Wilders parabolic as a
trailing stop loss system on Futures and Spreads. It worked OK. The thing is your software has to let you start it on the day of the CPR (weather low or high) and use it only in the direction of trend.

I think Mr. Wilder confirmed that it works best in the direction of trend. For example, a simple system is to enter on a
Stochastics Divergence, start PSR on the low of the move, and use PSR as a trailing stop.

Because I like to win, I trade exclusively Seasonal Spreads. Whenever you do take a Spread the other way, the parabolic has to go back to the top. Do not start it on the day it is stopped out after the new trend is already underway.

This is the most crucial point. The reference point needs to be the
swing point for the move. You cannot use the random flip over stopped out point. Think about it. It makes no sense at all to start it after the trend is in.