construction
The Parabolic SAR is conceptually based on a trailing stop mark, which serves to liquidate an existing position and at the same time to establish a position in the opposite direction. The acceleration factor contained in the formula, which leads to the parabolic course of the stop marks, represents the special feature of the indicator. As the duration of the trade progresses, the stop is brought closer and closer to the price curve in order to secure profits. The initial acceleration factor is 0.02 by default. If a trade is going in the “right” direction, the acceleration factor is increased by a certain amount with each new high in an uptrend or low in a downtrend. This increase is also 0.02 in the default setting. Wilder suggested a maximum value of 0.20. If the software used allows it, traders can experiment with the initial acceleration factor and/or the maximum value to make the indicator more sluggish or sensitive. If the price of the underlying crosses the indicator at the closing price in the respective time unit used, this results in the position turning from long to short or vice versa.