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Thread: Parabolic SAR Indicator

Parabolic SAR (PSAR) indicator was developed by J. Welles Wilder.

#PSAR #Indicators #Definedge

 The calculation of this indicator is a bit complex, but the concept is extremely useful. I will try to simplify it and explain the logic. I will briefly explain the concept, calculation and reading.

Let us think about creating an indicator that shows the trend.
Using the indicator, we can identify & ride the trend using the trailing stop-loss method.

For trailing the stop in uptrend, indicator needs to be placed below the candle. Similarly, it should be placed above the candle for trailing in a downtrend. We will plot it using ‘dots’.
So, the indicator & stop-loss will be rising in uptrend & falling in downtrend.

Let us define the trend as:

If Low of the candle > Stop-loss level in bull market = Trend remains bullish.

If High of the candle < Stop-loss level in bear market = Trend is bearish
Imagine you are driving a car on highway; you would like to accelerate if the road is clear. You will slow down if the road is bumpy.
Same concept is applied here.

The indicator rises steadily if the trend is steady. If the trend is strong the indicator should accelerate, it should move faster and stop should get trailed aggressively.

What is strong trend?
Strong?
In a bullish trend if price makes a new high it is a strong bullish trend.
In a bearish trend, if price makes a new low it is a strong bearish trend.

Period?
Period for new high: since the indicator turned bullish
Period for new low: since the indicator turned bearish
Hope concept is clear.

Calculation of PSAR: EP, AF and PSAR

Extreme Price (EP) is calculated on every candle.

‘High’ price in bullish market and ‘Low’ price in bearish market is called as Extreme Price (EP).
If Bullish trend:

If new high is made -> EP = New High price
Else
EP = Prev High

If Bearish trend

If new low is made -> EP = New Low price
Else
EP = Prev Low

Period of new high or low is explained earlier.
Wilder created a method of calculating Acceleration Factor (AF) for the indicator:

> Accelerate it by 0.02 if trend is steady.
> Add 0.02 to previous speed if trend is strong.
> Maximum acceleration will be 0.20.
A = Different between extreme price and PSAR indicator price

Multiply Acceleration factor by A and add it to the previous stop-loss, you get new PSAR indicator reading.

PSAR = A x AF + Previous PSAR reading
Have a look at below image. Pink dots show PSAR indicator.

Phase A is when indicator moving at a steady speed. Phase B is when trend is strong (New high in bull market, new low in bear market) hence, PSAR is accelerating with a greater speed (0.02 being added) during B.
So, the basic reading of the indicator is:

Trend is bullish when price is above the PSAR, it is bearish when price is below PSAR. You can use it as a trend filtration method.

Indicator accelerates during strong trends. Hence, rising PSAR and Falling PSAR are also important.
The indicator is also used as a Stop & Reverse (SAR) trading system.

When trend changes, the length of the stop-loss depends on the previous high or low. Avoid the signal if initial stop-loss is not affordable. Wait for the pullback pattern that provides better risk-reward trade
I wouldn’t say PSAR is a good sup-res indicator because it’s a mathematical calc. But it offers pullback trade opportunity with better risk-reward when price comes near the indicator during strong trends.

It can be used alone or combined with other studies to design the system.
We discussed about AMA and Super trend indicator which uses similar concept. They go flat when trend is not strong. PSAR increases steadily if trend is not strong and moves fast when it is strong.

Below are some Important things about PSAR indictor:
Imp features:
• Unlike many other indicators, you do not have to define the look-back period, define the acceleration factor
• It does not use method of averaging
• It uses high, low prices to determine the trend and stop-loss level
• Indicator accelerates if trend is strong
Indicator is useful & applicable on different timeframes. 0.02 and 0.20 are recommended settings to being with. I like to explore it on Noiseless charts, objective price patterns are advantage there. Change max AF to 0.10 if you want to use it in Renko. I will talk more about it.
Is it a ‘leading’ or ‘best’ indicator? Its different & useful. ‘Leading’ comes at a cost, ‘Lagging’ can b useful as well. Major issue wid learning in d field of trading is that everything is associated wid trading it immediately. Focusing on concept would bring long-term success!

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Below is some interesting information.


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Patterns are defined based on the popular rules of identifying them. I have also tested bearish patterns for bullish trades and vice versa (Contra approach).

Criteria: Hit ratio & returns of pattern giving 1:1 risk-reward if the entry is at the closing price of the pattern.

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Thread: P&F Super Pattern

An effective price pattern defined using properties of P&F charts.

#Superpattern #Pointandfigure #Definedge


Point & Figure is an oldest charting method where price is plotted vertically, and the chart moves only when price moves. It is a different way of looking at the price, the objective box-value and reversal value offers advantage of identifying objective price patterns.

When price is moving up, it is plotted in a column of 'X'. When it is going down, it is plotted in a column of ‘O’. Normally, three-box reversal criteria is used to define the trend & reversal. Unlike a bar or candle, the P&F column can have multiple sessions in it.


Link to know more about the subject:
https://t.co/2xtLAVPBvm

See below chart. Price is in a strong uptrend, P&F chart would produce a long of column of 'X' with more number of boxes in it.


If such a trend is followed by some time bars without meaningful price correct, P&F chart would not move, and it will remain in column of 'X' in such a scenario.
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Thread: Super trend indicator:

Developed by Olivier Seban, Super trend is an indicator plotted on the price chart like a moving average.


Let us discuss three important components of this indicator.

1: Range-price.

In every bar or candle, we have four prices - Open, High, Low, Close.

We have the option to select any price of above to define the trend.

For example, we may define an uptrend as today’s close being above yesterday’s close.

We can also calculate range price of every bar. It is also known as Average price or Mid-price.

Range price = (High + Low) / 2


Have a look at the images below.

In the first Image below , the closing price of each candle is connected to the closing price of the next candle.


In the below chart, the “range-price” or the mid-point of each candle is connected.
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Thread: Camarilla Levels

Continuing our discussion on pivot levels, we look at the Camarilla levels which is another widely followed tool.

Word ‘Camarilla’ is borrowed from Spanish. It translates to a group of confidential & private advisers of the King or person in authority.


The Camarilla equation was first developed by a bond trader named Nick Scott in 1989. It is said that he didn't disclose the equation, but people studied the levels & reverse engineered it to find the formula. There r different versions of this formula.

We discussed about ‘Range’ in the earlier thread. The range is basically the difference between High & Low of the session.

High – Low = Range of the session
Continuing with the same levels as an example, If High of the day is 105 and Low is 95, Range of the session is 10 points.


Range shows us activity during the session irrespective of the trend.
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Wide Range = Strong activity

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How to Avoid Big Losses In trading ?

1. Avoid Stocks Below 200 ema
2. Sell Stocks in Stage 4 Down Trend
3. Dont Trade Stocks that are moving in Circuits
4. Avoid News based Trading

A thread With examples🔖

Retweet to Educate Your Trading Friends !
1/n

A Study Shows that 90% of the winning Stocks stay above 200 ema before a big Advancing Phase

1. Simply Not Holding or Buying Stocks below 200 ema Saves a lot of time and Money.
2. You can looses opportunity Cost if you buy stocks below 200 ema.
3. TimeFrame: Daily 200 ema

2/n


B. Sell Stocks in Stage 4 Down Trend

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2. The 30 week ema acts as reference for stage analysis
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This is the most important concept which made me great money in 2022.

This is the skill which is GUARANTEED to make you a better trader


Banknifty moves in 2 phases.

1: Consolidation
2: Trends

An understanding of both of these phases will take your trading to the next level.

Let's start with consolidation phase

It looks like this when Banknifty is stuck inside a range.


This is phase when you shouldn't be taking directional trades.

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Trending phase will look something like this

The price action is quick and furious at this time.

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