Parabolic SAR — Complete Reference
Trailing-stop indicator that flips sides when trend reverses.
What Parabolic SAR is
Parabolic SAR ('Stop and Reverse'), another J. Welles Wilder creation. Plots dots above or below price candles: dots below = uptrend, dots above = downtrend. When dots flip sides, the system signals trend reversal.
How the parabolic motion works
The math accelerates the dots toward price as the trend continues. This means: the longer the trend, the closer SAR gets to current price, tightening the implicit stop. Catches the bulk of trends, exits when they slow.
Reading SAR signals
When price closes below the dots after they've been below = bearish flip. When price closes above the dots after they've been above = bullish flip. The flip itself is the signal — both an exit signal for the previous position and an entry signal for the new direction.
Where Parabolic SAR shines
Strong, sustained trends. SAR captures the bulk of clear trending moves. Trend-following systems built around SAR with ADX filter are documented to perform well in trending years.
Where Parabolic SAR fails
Choppy, range-bound markets. SAR whipsaws constantly when price doesn't trend — flipping sides every few bars and creating losing trades. The single biggest weakness.
Pairing SAR with ADX
The classic fix: only take SAR signals when ADX > 25 (confirms trend exists). This filters out the worst chop-driven losses. Most experienced SAR users require this filter.
Using SAR as a trailing stop only
Some traders use SAR purely as a trailing stop for trades they entered via other systems. In this use case, SAR's accelerating math captures most of the trend before exiting on the reversal.
Standard SAR settings
Acceleration factor: 0.02 (default). Maximum: 0.20. These control how quickly the dots accelerate toward price. Faster = tighter stops, more flips. Slower = wider stops, fewer flips but bigger giveback on reversals.