What Is Parabolic SAR?
Parabolic SAR (Stop and Reverse), another Wilder creation, plots dots above or below price candles. Dots below price = uptrend; dots above = downtrend. When the dots flip sides, the system signals a trend reversal.
The math accelerates the dots toward price as the trend continues, so the longer a trend runs, the closer the SAR gets, tightening the implicit stop. This means SAR catches the bulk of a trend but exits with profits intact when the trend slows.
The weakness is choppy markets: SAR whipsaws constantly when price doesn't trend, flipping sides every few bars and creating losing trades. Most experienced users combine SAR with an ADX filter — only take SAR signals when ADX > 25, meaning a trend exists. As a standalone, it loses to choppy conditions.
Related terms
- ADX (Average Directional Index) — Trend strength gauge — high ADX = trending market, low ADX = chop.
- Trend — The general direction of price movement over a period — uptrend, downtrend, or sideways.
- Stop Loss — A predefined exit price that limits losses if a trade moves against you.
- Trailing Stop — Dynamic stop that moves with favorable price action, locking in profits.