PSAR Trend Filter 1 & 2 (Parabolic SAR) Advance Settings
Key Parameters:
1. Timeframe
Definition: The timeframe refers to the time period over which the Parabolic SAR is calculated. For example, a 1-minute timeframe will use the last minute of price data, while a 1-hour timeframe will use the last hour.
How It Works:
Shorter timeframes (e.g., 1-minute, 5-minute) are useful for quick reactions to short-term price changes and fast trend reversals.
Longer timeframes (e.g., 15-minute, 1-hour) provide more stable trend identification, making them useful for identifying more sustained trends.
Use Case:
Shorter timeframes: Ideal for quick trend reversals and capturing fast-moving markets.
Longer timeframes: Better for identifying longer-term trends and providing more reliable signals over a greater period.
2. Trend 1 Start (Initial Trend Start Point)
Definition: The Trend 1 Start value determines the initial point at which the Parabolic SAR begins calculating the trend. This is typically set at the beginning of the current trend (either bullish or bearish).
How It Works:
The Trend 1 Start defines the starting point of the first trend phase, helping the SAR to either track an uptrend or downtrend.
Use Case:
Setting the Trend 1 Start correctly is essential for determining the beginning of a trend and avoiding lag in trend-following strategies.
3. Trend 1 Increment (Acceleration Factor)
Definition: The Trend 1 Increment is the rate at which the Parabolic SAR accelerates as the trend continues. It is a multiplier used to adjust the sensitivity of the indicator.
How It Works:
The increment increases the distance between the price and the SAR as the trend develops. Typically, it starts at a small value (e.g., 0.02) and increases incrementally (e.g., 0.02) each time the trend continues in the same direction.
Higher increments will make the indicator more sensitive to price movements, causing it to react more quickly to trend changes.
Use Case:
Larger increments: Used for fast-moving trends and aggressive trading strategies.
Smaller increments: Used for slower-moving trends and long-term trend-following strategies.
4. Trend 1 Max Value (Maximum Value for Trend 1)
Definition: The Trend 1 Max Value is the maximum possible value for the Trend 1 Increment. This sets an upper limit on how fast the Parabolic SAR will accelerate.
How It Works:
This cap ensures that the SAR does not become too sensitive and start providing too many false signals in volatile conditions.
For example, a value of 0.2 may be used to cap the SAR's acceleration after a certain trend length, preventing the indicator from reacting too aggressively.
Use Case:
Larger Max Values help the indicator track strong trends without becoming overly sensitive.
Smaller Max Values are suitable for less volatile conditions.
5. PSAR 1 Distance % (Parabolic SAR Distance for Trend 1)
Definition: The PSAR 1 Distance % determines how far the SAR value will be from the price, expressed as a percentage.
How It Works:
A higher percentage will place the SAR farther from the price, making it more conservative in detecting trend reversals. Conversely, a lower percentage will bring the SAR closer to the price, causing it to react more quickly to price movements.
Typically set between 0.02 to 0.05.
Use Case:
Higher distance %: Used to avoid false signals by ensuring that trend reversals are confirmed over a longer period.
Lower distance %: Better for fast trend shifts, but could lead to more frequent stop-outs.
Trend 2 Settings (Opposite Trend Filter)
6. Trend 2 Start (Start of Trend 2)
Definition: The Trend 2 Start parameter sets the point where the second trend (typically the opposite of the first trend) begins.
How It Works:
When the Parabolic SAR signals a trend reversal, this setting determines where the second trend phase will begin (whether moving from a bullish to bearish trend or vice versa).
Use Case:
This value is important for marking the beginning of a trend reversal, and it works with the other parameters to help filter out incorrect signals in sideways markets.
7. Trend 2 Increment (Acceleration Factor for Trend 2)
Definition: Similar to Trend 1 Increment, Trend 2 Increment adjusts the rate at which the SAR reacts to price changes during the second phase of the trend.
How It Works:
It accelerates the indicator's movement when the market begins to reverse. This allows it to track the reversal closely and confirm the new trend's strength.
Use Case:
A higher Trend 2 Increment makes the SAR more sensitive to the newly established trend, while a lower increment makes it more stable and less likely to be affected by market noise.
8. Trend 2 Max Value (Maximum Value for Trend 2)
Definition: The Trend 2 Max Value works the same way as the Trend 1 Max Value, capping the acceleration of the SAR during the second trend phase.
How It Works:
This setting ensures that the SAR does not become too sensitive and overly react to price fluctuations in the opposite trend.
Use Case:
A higher Trend 2 Max Value provides a more stable reversal signal while smaller values make the SAR more reactive during reversals.
9. PSAR 2 Distance % (Parabolic SAR Distance for Trend 2)
Definition: The PSAR 2 Distance % parameter sets the distance between the price and the SAR during the second trend phase (the reversal phase).
How It Works:
Similar to the Trend 1 PSAR distance, a higher value ensures that the SAR remains farther from the price, preventing false trend reversal signals.
Use Case:
Higher distance %: Used in markets that experience strong, sustained trends.
Lower distance %: Suitable for quick trend reversals where fast changes are expected.
Example Configuration for Parabolic SAR:
Timeframe: 5-Minute (for capturing short-term trend reversals)
Trend 1 Start: 0.02 (initial acceleration factor for uptrend)
Trend 1 Increment: 0.02 (gentle acceleration)
Trend 1 Max Value: 0.2 (maximum value to cap SAR's sensitivity)
PSAR 1 Distance %: 0.05 (closer SAR to track price movements more accurately)
Trend 2 Start: 0.02 (beginning of trend reversal)
Trend 2 Increment: 0.02 (gentle acceleration for trend reversal)
Trend 2 Max Value: 0.2 (same cap for consistency)
PSAR 2 Distance %: 0.05 (similar distance as Trend 1 for stability)
Summary:
The Parabolic SAR is a versatile trend-following indicator that helps identify trend reversals. By adjusting the Timeframe, Trend 1 and Trend 2 settings, and PSAR Distance %, traders can fine-tune the indicator to their specific strategy, whether they are trading fast-moving markets or long-term trends. These parameters allow for more accurate trend reversal identification, helping traders filter out false signals and make more informed trading decisions.
Last updated