Parabolic SAR (Stop and Reverse) is a trend-following indicator created by Welles Wilder. It plots dots above or below price to show trend direction and provide trailing stop levels. “Parabolic” refers to the curved shape the dots form; “SAR” means the position where the trend would stop and reverse. Dots below price indicate uptrend; dots above indicate downtrend.
- Dots below price = uptrend; above = downtrend
- Dots serve as trailing stop levels
- Best in trending markets; avoid ranges
How Parabolic SAR Works
SAR accelerates toward price as trend continues:
Parabolic SAR Calculation:
SAR(tomorrow) = SAR(today) + AF × (EP - SAR(today))
Where:
AF = Acceleration Factor (starts at 0.02)
EP = Extreme Point (highest high or lowest low)
AF increases by 0.02 each time EP makes new high/low
AF maxes out at 0.20 (default)
Visual:
Uptrend:
Price
• /
• /
• /
• /
• • • • •
SAR dots below
Downtrend:
• • • • •
• \
• \
• \
• \
Price
SAR dots above
Quick Reference: Parabolic SAR Signals
| Dot Position | Trend | Action |
|---|---|---|
| Below price | Uptrend | Long/Buy |
| Above price | Downtrend | Short/Sell |
| Flips below to above | Trend reversal down | Exit long, go short |
| Flips above to below | Trend reversal up | Exit short, go long |
Example: Trading Parabolic SAR
SAR Trend Following:
| Day | Price | SAR | Position |
|---|---|---|---|
| 1 | $100 | $98 (below) | Long |
| 5 | $108 | $102 (below) | Long, SAR rising |
| 10 | $115 | $109 (below) | Long, SAR accelerating |
| 12 | $112 | $114 (above) | SAR flips, EXIT long |
| 15 | $105 | $115 (above) | Short |
Parabolic SAR plots dots above or below price to show trend direction. Dots below mean uptrend—stay long. Dots above mean downtrend—stay short. When dots flip sides, exit and reverse. Use dots as trailing stops. Avoid in ranging markets.
Parabolic SAR Settings
Acceleration Factor (AF)
- Default step: 0.02
- Lower (0.01): Slower, fewer whipsaws
- Higher (0.03): Faster, more signals
Maximum AF
- Default: 0.20
- Lower: Dots stay further from price
- Higher: Dots get closer to price faster
Trading Strategies
Trend Following
Enter when SAR flips. Stay in until it flips again. Simple but effective in trends.
Trailing Stop
Use SAR dots as your trailing stop level. Move stop with each new dot.
With Trend Filter
Combine with ADX. Only take SAR signals when ADX confirms trend (above 25).
Exit Only
Use SAR for exits only, with separate entry criteria.
Limitations
Whipsaws in Ranges
SAR constantly flips in sideways markets, generating losses.
Late Entries
By the time SAR flips, significant move may have occurred.
Fixed Parameters
Default settings may not suit all instruments or timeframes.
Common Mistakes
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Using in ranging markets – SAR needs trends. Filter with ADX or price structure.
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Ignoring context – SAR flip at support/resistance is more meaningful than random flip.
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Default settings everywhere – Adjust step and max for your instrument’s volatility.
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No profit targets – SAR is good for stops but you still need profit targets.
How JournalPlus Tracks SAR
JournalPlus logs Parabolic SAR position at entry, helping you analyze whether SAR-based entries and exits improve your trend-following results.
