Parabolic SAR Reversal Strategy

This strategy trades based on Parabolic SAR indicator which identifies potential reversal points in trends. Entry signals are generated when SAR flips above or below price.

Pine ScriptMean reversion Trend following MACD Parabolic SAR

Author: ChaoZhang
Complexity: Intermediate · 64 lines
Parameters: 9
Backtest bar: 3h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy trades based on Parabolic SAR indicator which identifies potential reversal points in trends. Entry signals are generated when SAR flips above or below price.

Principles

Parabolic SAR is a trend following indicator that mainly identifies trend reversals.

When SAR is below price, it represents uptrend. SAR flipping above price gives short signal.

When SAR is above price, it represents downtrend. SAR flipping below price gives long signal.

The strategy simply trades the SAR flip as signal direction, with SAR as stop loss.

Advantages

SAR accurately locates potential reversal points.
Trend following mechanism reduces false signals.
SAR acts as trailing stop, avoiding being trapped.
No other indicators or filters required.
Easy parameter optimization, defaults often work.

Risks and Mitigations

SAR may whipsaw in ranging markets. Trend filter can be added.
SAR too close to price risks being hit. Wider stops needed.
Volume is ignored, risk of divergence. Volume indicators can help.
Drawdowns may be significant. Appropriate position sizing is key.
Reversals do not always succeed. Confirmation may be needed.

Enhancement Opportunities

Test if SAR parameters can be improved.
Add indicators like MACD to confirm reversal probability.
Build dynamic trailing stop mechanism.
Optimize entry position sizing to capitalize on SAR signals.
Research adding reversal confirmation logic.

Summary

The strategy trades potential reversal points identified by SAR, taking trades when SAR flips price. Benefits include trailing stops to avoid traps. But SAR timing may be inaccurate and needs refinement. Overall the SAR reversal concept is worth learning.

Parameters

Name	Default	What it controls
v_input_1	0.02	start
v_input_2	0.02	increment
v_input_3	0.2	maximum
v_input_4	true	From Day
v_input_5	true	From Month
v_input_6	2018	From Year
v_input_7	true	To Day
v_input_8	true	To Month
v_input_9	2019	To Year

Source Pine Script

/*backtest
start: 2023-08-18 00:00:00
end: 2023-09-17 00:00:00
period: 3h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=3
strategy("Parabolic SAR Strategy", overlay=true)

// 
// author: Kozlod
// date: 2018-09-03
// https://www.tradingview.com/u/Kozlod/
// 

start = input(0.02)
increment = input(0.02)
maximum = input(0.2)

////////////////////////////////////////////////////////////////////////////////
// BACKTESTING RANGE
 
// From Date Inputs
fromDay = input(defval = 1, title = "From Day", minval = 1, maxval = 31)
fromMonth = input(defval = 1, title = "From Month", minval = 1, maxval = 12)
fromYear = input(defval = 2018, title = "From Year", minval = 1970)
 
// To Date Inputs
toDay = input(defval = 1, title = "To Day", minval = 1, maxval = 31)
toMonth = input(defval = 1, title = "To Month", minval = 1, maxval = 12)
toYear = input(defval = 2019, title = "To Year", minval = 1970)
 
// Calculate start/end date and time condition
startDate = timestamp(fromYear, fromMonth, fromDay, 00, 00)
finishDate = timestamp(toYear, toMonth, toDay, 00, 00)
time_cond = true
 
////////////////////////////////////////////////////////////////////////////////

psar = sar(start, increment, maximum)

// Signals
psar_long  = high[1] < psar[2] and high > psar[1] 
psar_short = low[1]  > psar[2] and low  < psar[1] 

// Plot PSAR
plotshape(psar, location = location.absolute, style = shape.cross, size = size.tiny, color = low < psar[1] and not psar_long ? green : red)


if (psar >= high and time_cond)
    strategy.entry("ParLE", strategy.long, stop=psar, comment="ParLE")
else
    strategy.cancel("ParLE")

if (psar <= low and time_cond)
    strategy.entry("ParSE", strategy.short, stop=psar, comment="ParSE")
else
    strategy.cancel("ParSE")

if (not time_cond)
    strategy.close_all()

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-18. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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