How to use Parbolic Sar to set stops

The video is a tutorial on how to use the parabolic SAR to set stop loss orders.  The speaker walks through how to configure this indicator to adapt to price moves in the stock.  There are two inputs used to set the sensitivity to price changes; the acceleration factor and the maximum constant.

The higher the acceleration factor, the more sensitive the indicator will be to price movements in the underlying stock.  Conversely, a lower value on the maximum constant will create a larger gap between the price of the stock and the trailing stop loss as defined by the parabolic SAR line.

The parabolic SAR has three main purposes.  Firstly, it used to help the trader identify the trend.  Secondly, SAR dots help spot trend reversals when they shift in direction.  Finally, they provide a mathematical basis to setting a trailing stop order. 

The speaker suggests that the Parabolic SAR should only be used to set trailing stops in a strongly trending market; otherwise, you may experience whipsaw action.


Tim Ord
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Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

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