pSAR - Parabolic Stop And Reverse Indicator is a lagging indicator which trails price as the trend extends over time. pSAR is below prices when prices are rising and above prices when prices are falling. So, pSAR stops and reverses when the price trend reverses and breaks above or below pSAR.
pSAR in Price Uptrend is calculated based on highest highs being achieved in the current uptrend. Similarly pSAR in price downtrend is calculated based on highest highs being achieved in the current uptrend.
Once a downtrend reverses and starts up, SAR follows prices like a trailing stop and continuously rises as long as the uptrend remains in place. Once price stops rising and reverses below SAR, a downtrend starts and SAR is above the price. pSAR continuously falls as long as the downtrend extends. So, pSAR is commonly used as trailing stoploss in trading systems.
The signal quality of PSAR depends on the settings and the characteristics of the underlying security. The right settings combined with decent trends can produce a great trading system. The wrong settings will result in whipsaws, losses and frustration. There is no golden rule or one-size-fits-all setting. Each security should be evaluated based on its own characteristics. Parabolic SAR should also be used in conjunction with other indicators and technical analysis techniques such as ADX for estimating strength of the trend.
Bullish PSAR reversal: This happens when PSAR moves from Above the price to below Price.
Bearish PSAR reversal: This happens when PSAR moves from below the price to above Price.
TradersCockpit.com Realtime Screener enables you to screen stocks which have undergone Bullish and Bearish PSAR reversal.