Parabolic SAR — Stop and Reverse

A trend-following overlay indicator that places trailing stop dots above or below price to signal trend direction and reversals.

Trend
$52 $50 $48 $46 $44 $42 $40 Flip Point SAR dots below = Bullish SAR dots above = Bearish ▲ BUY ▼ SELL Dots accelerate Parabolic SAR — Dot Placement & Trend Flip

Bullish Signals

Bearish Signals

What Is the Parabolic SAR?

The Parabolic SAR (Stop and Reverse) is a trend-following overlay indicator developed by J. Welles Wilder Jr., the same creator behind the RSI. Introduced in his 1978 book New Concepts in Technical Trading Systems, it was designed to provide traders with a systematic trailing stop mechanism that automatically adjusts as a trend progresses.

The indicator appears on a price chart as a series of small dots placed either above or below the candlesticks. When the dots sit below the price, the market is in a bullish trend. When the dots sit above the price, the market is in a bearish trend. The moment the dots switch from one side to the other is called a "flip" and is the primary signal the indicator generates. This flip simultaneously closes your current position and opens the opposite one, hence the name "Stop and Reverse."

What makes the Parabolic SAR unique among trend indicators is its built-in acceleration mechanism. As a trend matures, the dots move progressively closer to the price, creating a parabolic curve. This ensures that profits are protected: a long-running trend will have a very tight trailing stop, while a freshly initiated trend has a wider stop to allow for early volatility.

How the SAR Dots Work

The SAR value for each bar is calculated using two parameters: the Extreme Point (EP), which is the highest high in an uptrend or the lowest low in a downtrend, and the Acceleration Factor (AF), which starts at 0.02 and increases by 0.02 each time a new EP is reached, up to a maximum of 0.20.

Formula: SAR(tomorrow) = SAR(today) + AF x (EP - SAR(today)).

In an uptrend, the SAR starts well below the price and accelerates upward. Each time the price makes a new high, the AF increments by 0.02, causing the dot to chase the price more aggressively. When the price finally reverses and touches or crosses below the SAR dot, a flip occurs: the dots jump to the opposite side of price and the AF resets to 0.02. This cycle repeats throughout the life of the chart.

Because of this acceleration, the indicator has a natural tendency to eventually "catch up" with price even if the trend continues. This is both its strength, since it locks in profits, and its weakness, since it can force premature exits in strong parabolic moves.

How to Use Parabolic SAR

The most straightforward application is as a trailing stop-loss. If you are long, set your stop-loss at the SAR dot below the current candle. Each session the dot moves higher, so your stop rises with it, protecting gains. If the price closes below the SAR, exit the position.

Flip signals can also serve as entry points. When dots switch from above to below, go long. When dots switch from below to above, go short or exit longs. However, relying solely on flip signals leads to whipsaws in ranging markets, which is why most experienced traders pair the Parabolic SAR with a trend-strength filter such as the ADX. A practical rule is to only take SAR flip signals when the ADX reading is above 20 or 25, confirming that a genuine trend is present.

Another common strategy combines the SAR with moving averages. Enter a long trade only when price is above the 200 EMA and a bullish SAR flip occurs. This double confirmation eliminates many false signals that occur during choppy, trendless periods.

Common Mistakes

Using Parabolic SAR in ranging markets. The indicator was designed for trending conditions. In sideways markets, dots flip back and forth rapidly, generating a series of losing trades. Always assess whether a trend exists before trusting SAR signals. If the ADX is below 20, the market is likely range-bound and SAR should be ignored.

Using the default settings on all timeframes. The standard AF of 0.02/0.20 works well on daily charts for swing trading, but on intraday charts the signals can be too slow. On weekly charts, they may be too tight. Adjust the acceleration factor and maximum to suit your timeframe and the asset's volatility.

Ignoring the acceleration factor's impact. As the AF increases, the stop tightens quickly. In a volatile stock, this can trigger premature exits. If you find the SAR is stopping you out too early, reduce the AF increment to 0.01 and the maximum to 0.10 for a more conservative trailing stop.

Treating every flip as a reversal trade. Not every flip warrants opening the opposite position. In many cases, a SAR flip is simply a stop-loss being hit, and the appropriate action is to exit and wait for confirmation of a new trend rather than immediately reversing.

Recommended Settings

AF Start / Max Style Best For
0.02 / 0.20 (default) Standard Swing trading, daily charts, most assets
0.01 / 0.10 Conservative Position trading, weekly charts, volatile stocks
0.03 / 0.30 Aggressive Day trading, scalping, fast-moving momentum plays
0.02 / 0.10 Moderate Trend following with wider stops, forex

Frequently Asked Questions

The Parabolic SAR (Stop and Reverse) is a trend-following overlay indicator developed by J. Welles Wilder. It places dots above or below the price to indicate trend direction. When dots are below the price, the trend is bullish. When dots are above the price, the trend is bearish. The moment dots switch sides is called a flip and signals a potential trend reversal. It is one of the few indicators that provides both trend direction and a specific trailing stop-loss level.
SAR dots below the candles indicate a bullish trend and serve as a trailing stop-loss level for long positions. SAR dots above the candles indicate a bearish trend and serve as a trailing stop-loss for short positions. The dots accelerate toward the price as the trend matures, which means the stop level tightens over time. This acceleration is controlled by the Acceleration Factor parameter.
The default settings are an acceleration factor starting at 0.02, incrementing by 0.02, with a maximum of 0.20. These work well for daily chart swing trading. For less frequent signals and wider stops, use 0.01 start and 0.10 maximum. For more aggressive day trading with tighter stops, try 0.03 start and 0.30 maximum. Always backtest new settings on your specific market and timeframe before trading live.
No, the Parabolic SAR performs poorly in sideways or choppy markets. The dots flip back and forth rapidly, generating whipsaw signals that result in a series of small losses. It is specifically designed for trending conditions. Most traders combine it with the ADX indicator and only take SAR signals when the ADX is above 20 to 25, confirming that a real trend is present.
The SAR dot value for each bar acts as a natural trailing stop-loss level. In an uptrend, set your stop at the SAR dot below the current candle. Each day the dot moves higher, so raise your stop accordingly. If price closes below the SAR dot, exit the trade. In a downtrend, place your stop at the SAR dot above the candle. This method systematically locks in profits as the trend progresses while allowing the position to run until momentum truly fades.

Related Indicators

ADX

Average Directional Index measures trend strength without direction, making it an ideal filter for Parabolic SAR signals.

Moving Averages

SMA and EMA provide trend direction confirmation that complements SAR dot placement and reduces false flips.

ATR

Average True Range measures volatility, helping you adjust SAR acceleration settings based on market conditions.

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Part of our Technical Analysis Guide