Question 1

What is Parabolic SAR?

Accepted Answer

The Parabolic SAR (Stop And Reverse), developed by J. Welles Wilder, is a trend-following indicator that places dots above or below price to indicate the current trend direction. When the dots flip from one side of price to the other, it signals a potential trend reversal and suggests closing the current position and reversing direction.

Question 2

How it works

Accepted Answer

``` SAR_next = SAR_current + AF × (EP - SAR_current) AF = Acceleration Factor, starts at 0.02, increments by 0.02 each new EP, max 0.20 EP = Extreme Point (highest high in uptrend, lowest low in downtrend) ``` - In an uptrend, SAR is below price and rises toward it. - In a downtrend, SAR is above price and falls toward it. - When price touches SAR, the trend reverses (SAR flips to the other side).

Question 3

Key features

Accepted Answer

- **Visual clarity** — dots above/below price make trend direction immediately obvious. - **Built-in trailing stop** — SAR moves with the trend and never moves backward. - **Automatic reversal** — when price hits SAR, the system reverses. - **Acceleration** — SAR accelerates as the trend strengthens (AF increases).

Question 4

Trend direction

Accepted Answer

- SAR below price (dots below candles) — uptrend. - SAR above price (dots above candles) — downtrend.

Question 5

Reversal

Accepted Answer

- SAR flips from below to above — sell signal. - SAR flips from above to below — buy signal.

Question 6

Trailing stop

Accepted Answer

- Use SAR value as a trailing stop-loss level.

Question 7

Parameters

Accepted Answer

| Parameter | Default | Description | |-----------|---------|-------------| | Start | 0.02 | Initial acceleration factor | | Increment | 0.02 | AF increase per new extreme point | | Maximum | 0.20 | Maximum acceleration factor |

Question 8

Sub-components

Accepted Answer

| Component | Description | |-----------|-------------| | `SAR_TREND` | Trend direction: 1 = bullish (SAR below), -1 = bearish (SAR above) |

Question 9

Example conditions

Accepted Answer

| Condition | Meaning | |-----------|---------| | `SAR_TREND > 0` | Parabolic SAR shows uptrend | | `SAR_TREND SAR(0.02)` | Price above SAR — bullish |

Question 10

Tips

Accepted Answer

- Parabolic SAR excels in trending markets but generates many false signals in sideways markets. - Combine with ADX: only follow SAR signals when ADX > 25 (trending). - Lower acceleration factors (0.01) make SAR less sensitive — better for swing trading. - Higher acceleration factors (0.03) make SAR tighter — better for scalping. - SAR is excellent as a trailing stop mechanism rather than a standalone entry signal.