Parabolic SAR (Stop And Reverse)
Parabolic SAR (Stop And Reverse)
What is Parabolic SAR?
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.
How it works
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).
Key features
- 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).
Trading signals
Trend direction
- SAR below price (dots below candles) — uptrend.
- SAR above price (dots above candles) — downtrend.
Reversal
- SAR flips from below to above — sell signal.
- SAR flips from above to below — buy signal.
Trailing stop
- Use SAR value as a trailing stop-loss level.
Parameters
| Parameter | Default | Description | |-----------|---------|-------------| | Start | 0.02 | Initial acceleration factor | | Increment | 0.02 | AF increase per new extreme point | | Maximum | 0.20 | Maximum acceleration factor |
Sub-components
| Component | Description |
|-----------|-------------|
| SAR_TREND | Trend direction: 1 = bullish (SAR below), -1 = bearish (SAR above) |
Example conditions
| Condition | Meaning |
|-----------|---------|
| SAR_TREND > 0 | Parabolic SAR shows uptrend |
| SAR_TREND < 0 | Parabolic SAR shows downtrend |
| close > SAR(0.02) | Price above SAR — bullish |
Tips
- 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.