Creating a Trend Strength Indicator using the Parabolic SAR (Python Tutorial)

Chart generated with backtesting.py

I recently watched this video on YouTube.com BEST Parabolic SAR Indicator Strategy for Daytrading Crypto, Forex & Stocks where I picked up an interesting idea of using the distance between the close price and the Parabolic SAR (PSAR) to measure the strength of a trend. So I wanted to find out if this metric is useful for building a trading strategy.

In this post I’ll show you some of the results and the Python implementation.

This story is solely for general information purposes, and should not be relied upon for trading recommendations or financial advice. Source code and information is provided for educational purposes only, and should not be relied upon to make an investment decision. Please review my full cautionary guidance before continuing.

What is the Parabolic SAR?

The Parabolic SAR is a technical indicator developed by J. Welles Wilder Jr. The ‘SAR’ part stands for ‘Stop and Reverse’. According to Wikipedia, it a trend-following indicator and may be used to set a trailing stop loss or determine entry or exit points based on prices tending to stay within a parabolic curve during a strong trend.