Who says cheaters never win? Maybe the Parabolic SAR is not actually cheating, but J. Welles Wilder must have felt like it with his algorithm that allowed him to cheat other traders out of all their money.
Today, most traders use the Parabolic SAR so the advantage you have using it over other traders is not as huge as it once was. But can you imagine the huge advantage Wilder had when he first invented and started using the Parabolic SAR? To everyone who had to trade against him, he was a cheating dog.
Parabolic SAR is a method devised by J. Welles Wilder, Jr., to trade trends. It may be used as a trailing stop loss based on prices tending to stay within a parabolic curve during a strong trend. The SAR stands for Stop And Reverse
The Parabolic SAR mathematically represents the concept that time is the enemy, and unless a stock can continue to pull in more and more buyers, it should be sold.
The Parabolic SAR works best with trending securities, which occur roughly 30% of the time according to Wilder's estimates. This means the indicator will be prone to whipsaws or headfakes over 50% of the time or when a security is not trending.
Enjoy the awesome Parabolic SAR lesson below.