There are four types of technical indicators – trend,momentum, volatility, and volume.
Two key trend indicators are Supertrend and Parabolic SAR.
Supertrend extrapolates the ATR (Average True Range) and works as an overlay on the price chart by alerting analysts of change of trend (by printing up or down arrows on the price chart).
Now, the Average True Range is a volatility indicator. It works by comparing the highs and lows and determines the volatility by expressing itself as a number. This number is added or subtracted to the closing price to determine entry or exit price. The Supertrend extends this calculation and uses it to predict trend.
The Parabolic SAR (Stop and Reverse), which alerts about a trend change,works by figuring out the Extreme Point and applying an Acceleration Factor to it. It plots itself as a dot or cross above or below the price. If it is above the price, the trend is bearish and if it is below the price, the trend is bullish.
So, which is a better and faster indicator – Supertrend or Parabolic SAR?
As these are trend indicators, I have compared them on 1 Day, 1 Week charts and left the lower period charts alone. Perhaps you should try both indicators on lower periods charts and make a decision which is better.
Supertrend V/S Parabolic SAR
A. 1 Day Charts
B. 1 Week Charts
C. 1 Month Charts
If you are using Supertrend, ditch it and start working with Parabolic SAR.
Two things – It is possible that Supertrend may set off a faster alarm in some cases, but overall, the Parabolic SAR alerts you much faster.
Second thing, please try out the Parabolic SAR on lower time frames as an exercise.