Parabolic Stop and Reverse (Parabolic SAR)

What is the Parabolic Stop and Reverse?

The Parabolic Stop and Reverse (SAR) is a trend-following indicator developed by J. Welles Wilder Jr. and published in his landmark 1978 book "New Concepts in Technical Trading Systems" — the same book that introduced the RSI, ADX, and ATR. Unlike most indicators that float in a separate pane, the Parabolic SAR plots dots directly on the price chart: below price during uptrends and above price during downtrends. When the dots flip from one side of price to the other, the trend has reversed. Wilder designed the indicator specifically as a trailing stop mechanism — the acceleration factor causes the dots to draw closer to price over time, tightening stops as the trend matures. This makes the SAR particularly effective for riding trends while systematically locking in profits.

How It Works

The Parabolic SAR uses an acceleration factor (AF) that starts at 0.02 and increases by 0.02 each time the extreme point (the highest high in an uptrend or lowest low in a downtrend) is exceeded, up to a maximum of 0.20. The SAR value for each bar is calculated using the previous SAR, the extreme point, and the acceleration factor. In uptrends, the SAR dots begin far below price but move closer and closer until they eventually catch up, flipping the trend to down. The same logic applies symmetrically to downtrends. The "parabolic" in the name refers to the curved shape of the dot trajectory. Traders use the indicator both to identify trend direction (dots below = up, dots above = down) and as a mechanical trailing stop.

Formula

Uptrend SAR = Previous SAR + AF × (Extreme Point - Previous SAR)
Downtrend SAR = Previous SAR + AF × (Extreme Point - Previous SAR)
AF starts at 0.02, increases by 0.02 on each new extreme, max 0.20
Trend reverses when price touches or crosses SAR

How to Read the Parabolic SAR

• 1Dots below price: uptrend in progress
• 2Dots above price: downtrend in progress
• 3SAR flip: trend reversal signal
• 4Dots tightening toward price: trend maturing, exit approaching
• 5Dots widening from price: trend still has room
• 6Whipsaws in ranging markets produce many false flips
• 7Combine with ADX to filter out choppy periods

Strengths and Weaknesses

Example Strategy

This example is educational, not financial advice. Always backtest any strategy and manage risk with appropriate position sizing.

Related Indicators

Brokers That Offer the Parabolic SAR

Any broker with MetaTrader 4, MetaTrader 5, or cTrader supports the Parabolic SAR as a standard indicator. Below are our top EU-regulated picks.

Frequently Asked Questions