Parabolic SAR

The Parabolic SAR plots a series of dots that trail price — below the bars in uptrends, above them in downtrends — accelerating toward the market as a trend extends and flipping to the opposite side when price crosses them. The name abbreviates "stop and reverse": each dot is both trailing stop and the level where the trend is declared finished. This build is the raw textbook implementation using Wilder's standard parameters: a starting acceleration factor of 0.02, an increment of 0.02, and a maximum of 0.2.

How to Trade the Parabolic SAR?

• SAR below price: the system is long; each dot marks the rising trailing stop for the uptrend.
• SAR above price: the system is short, trailing the downtrend from above.
• Bullish flip: the SAR crosses under price and restarts below the market — a new uptrend by this system's definition.
• Bearish flip: the SAR crosses over price, stopping the uptrend out.
• Dots tightening toward price: the trend keeps printing new extremes, so the exit level is closing in quickly.

Every flip is at once an exit and a reversal signal — an asset in sustained trends, a liability in ranges. Alert conditions are included for both the bullish and the bearish flip.

Parabolic SAR Settings

• Start (default 0.02): the initial acceleration factor applied when a new trend begins. Raising it starts the dots closer to price for earlier exits at the cost of premature flips.
• Increment (default 0.02): the amount added to the acceleration factor each time the trend makes a new extreme point. Larger values tighten the trail faster in strong moves.
• Maximum (default 0.2): the upper cap on the acceleration factor. Lowering it keeps the trail looser late in a trend, holding positions longer but giving back more at the reversal.

Frequently Asked Questions

What are the best settings for the Parabolic SAR?

The 0.02 / 0.02 / 0.2 configuration is the reference and the sensible starting point. Raise the increment or maximum where the stop should chase price aggressively; lower them where normal pullbacks would trigger constant flips. Every adjustment trades earlier exits against more false reversals.

How do I combine the Parabolic SAR with other indicators?

Pair it with a trend-strength gauge, since the SAR behaves worst in ranges: take flips only in the direction of a long moving average or an ADX-style gate, and treat counter-trend flips as exits only.

What is the main limitation of the Parabolic SAR?

It has no neutral state, so sideways tape produces alternating flips with no way to stand aside. The dots also begin each new trend far from price, leaving wide early-trend risk, and the accelerating trail can force an exit on an ordinary pullback within a healthy trend.