Category: Advanced Indicator Set 2
Input parameters
Name
|
Setting
|
Default
|
High
|
High time series
|
High
|
Low
|
Low time series
|
Low
|
InitialPosition
|
Integer, -1 or +1
|
-1
|
AccelFactorStep
|
Real number > 0
|
0.02
|
AccelFactorMax
|
Real number > 0
|
0.2
|
Calculations
The mathematical description of Welles Wilder’s Parabolic Stop-And-Reverse (SAR) trading system is too complex to be presented here, so we refer the reader to the original work, where it is fully defined (see reference below).
Discussion
The SAR system always starts with an initial position, Short or Long. The initial position is Short if InitialPosition=-1, and Long if InitialPosition=+1. Only these two values are allowed; any other InitialPosition values will cause both indicators to abort. Before the SAR system even starts to actually trade, it searches for the first turning point. If initial position is Short, the SAR system searches for the first up turning point (a minimum Low followed by a larger Low). If initial position is Long, the SAR system searches for the first down turning point (a maximum High followed by a smaller High). Only after a turning point is found does the Parabolic SAR system activate.
The trading occurs whenever the SAR curve crosses the price time series. If current position is Long, and the Low time series goes below the SAR curve, the position switches to Short. If current position is Short, and the High time series goes above the SAR curve, the position switches to Long.
The Parabolic SAR Signal indicator generates Long Entry/Short Entry signals according to the logic above. Long Entry signals are denoted by +1, Short Entry signals are denoted by -1.
The default acceleration factor parameters (Step and Max) are the ones used by Welles Wilder. You may, however, let the optimizer in NeuroShell Trader Professional and DayTrader Professional find better settings for your particular trading strategy. When doing so, don’t let the optimizer change the InitialPosition parameter. This can be done by setting both InitialPosition‘s Min and Max values the same, either at -1 or +1.
Reference
J. Welles Wilder Jr., “New Concepts in Technical Trading Systems”, Section II. Printed by Hunter Publishing Company, Winston-Salem, NC. 1978. ISBN 0-89459-027-8.
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