What is the Parabolic SAR indicator?
In one line: Parabolic SAR is an indicator that places dots below price in an uptrend and above it in a downtrend, moving closer as the trend runs.
How it works
SAR stands for "stop and reverse." It was created by J. Welles Wilder Jr., who also built RSI and ADX.
In an uptrend, the dots sit below the candles and climb each candle. When price closes through the dots, they flip to the other side.
The dots speed up over time using an "acceleration factor." It usually starts at 0.02, rises by 0.02 each time price makes a new extreme, and stops at 0.20.
A simple example
In an uptrend, today's SAR is 100. The highest high of the trend so far is 110. The acceleration factor is 0.02.
Next SAR = 100 + 0.02 × (110 − 100) = 100 + 0.2 = 100.2.
As the trend keeps making new highs, the factor grows to 0.04, 0.06 and so on. The dots close in on price faster and faster.
Why it matters
Many traders use the dots as a Trailing stop: a stop that moves up as the trade moves in their favour. It gives a simple, rules-based way to stay in a trend and get out when it fades.
It also gives a quick read on direction. Dots below price: up. Dots above: down.
A common mistake
Using it in a sideways market. When price chops back and forth, the dots flip again and again. Each flip looks like a signal. Most are whipsaws.
Parabolic SAR was built for trending markets. Check that a Trend exists first, with the last turning points or ADX.
Parabolic SAR is best at one job: trailing a stop in a clear trend. It isn't built to pick entries in a range.
Questions
What are the best Parabolic SAR settings?
0.02 start, 0.02 step, 0.20 maximum is Wilder's default. Bigger numbers make the dots hug price tighter and flip more often.
Can Parabolic SAR be used as a stop loss?
Yes, that's a common use. Just check the first dot isn't so close that normal noise hits it. Work out the size from the stop distance with the position size calculator.
Does Parabolic SAR repaint?
Past dots don't change once a candle closes. The dot for the current open candle can move until that candle closes.
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