Parabolic SAR
The Parabolic SAR (Stop and Reverse) is a trend-following indicator developed by J. Welles Wilder. It places dots above or below price to indicate trend direction and potential reversal points. When dots are below price, the trend is bullish; when above, bearish. The dots accelerate toward price over time, tightening the trailing stop.
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Parabolic SAR calculates a trailing stop level that moves closer to price with each period. It uses an acceleration factor (AF) that starts at 0.02 and increases by 0.02 each time price makes a new extreme, up to a maximum of 0.20. When price crosses the SAR value, the indicator 'flips' — dots move from below to above price (or vice versa), signaling a potential trend reversal.
Key Features
Trading Signals
- →SAR flips below price — potential buy signal
- →SAR flips above price — potential sell signal
- →Dots getting closer to price — trend may be weakening
- →Wide gap between SAR and price — strong trend momentum
- →Use SAR dots as trailing stop-loss placement
Best Used For
Limitations to Consider
- ⚠Produces many false signals in sideways markets
- ⚠Always in the market (either long or short) — no neutral signal
- ⚠Whipsaws during consolidation can be costly
- ⚠Works best in strongly trending markets only
Parabolic SAR FAQs
Common questions about parabolic sar
Place your stop-loss at the current SAR dot level. As the trend continues, the SAR dots move in your trade's direction, automatically tightening the stop. When price hits the SAR level, exit the position.
Because SAR is always either bullish or bearish (never neutral), it constantly flips during sideways price action. Each flip triggers a false signal. Combine SAR with a trend filter like ADX to avoid trading when the market isn't trending.
Yes. The default acceleration factor is 0.02 with a maximum of 0.20. Lower values (like 0.01) make the SAR less sensitive and further from price. Higher values make it more aggressive. Adjust based on your risk tolerance and the asset's volatility.
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Disclaimer: Charted provides technical analysis for educational purposes only. This is not financial advice. All trading involves risk. Always consult a licensed financial professional before making investment decisions.
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