What it is
J. Welles Wilder introduced Parabolic SAR in 1978. SAR stands for stop and reverse: the dot is the stop, and when it is hit the indicator reverses to the other side.
The dots start slowly and accelerate each time price makes a new high in an uptrend (or a new low in a downtrend), so they curve towards price like a parabola. That tightens the stop as a trend matures. In a sideways market it flips back and forth, which is its main weakness.
How it is calculated
Start with the acceleration factor (AF) at 0.02. The extreme point (EP) is the highest high of the current uptrend. Each candle, the next SAR = previous SAR + AF x (EP minus previous SAR). Each time a new high is made, AF rises by 0.02, up to the maximum of 0.2. In an uptrend the SAR may never sit above either of the last two lows. When price trades below the SAR, the trend reverses: the new SAR is set at the old EP, AF resets to 0.02 and the same rules run in reverse for a downtrend.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| step | 0.02 | 0.001 to 0.2 | How much the acceleration factor grows with each new extreme. Higher makes the dots close in on price faster. |
| max | 0.2 | 0.01 to 1 | The cap on the acceleration factor. Lower keeps the dots further away in long trends. |
How to read it
How to trade it
- 1
Use a trend filter first, for example price above the 50 EMA on a 1 hour gold chart.
- 2
Entry trigger: the dots flip below price in the direction of that filter. Enter on the close of the candle that flipped them.
- 3
Initial stop at the first dot. Each new candle, move the stop up to the new dot.
- 4
No fixed target: the trade ends when price touches the dots. Optionally bank part at 2 times the starting stop.
- 5
On US30 the same works on a 15 minute chart; expect the first dot to sit 30 to 80 points away depending on the session.
Price trading through the current dot ends the trade and flips the SAR. If it flips twice within a few candles, the market is ranging and the idea is off until a trend returns.
On WickSpeak, Parabolic SAR writes a plain-English reading on the live candle: which side the dots are on, how far away the stop is in points, how to trade it and what would prove it wrong. In Playbook you can test: flips long, flips short, is bullish, or is bearish. Playbook can also pair it with Bollinger Bands (a rising SAR below the lower band, or a falling SAR above the upper band) and can trail a stop on an indicator.
Best markets and timeframes
Best in steady trends on gold, US30 and NAS100, on 15 minute to daily charts. Poor in ranges and choppy forex sessions.
Common mistakes
- Entering on every flip with no trend filter.
- Raising the step to get faster signals, which produces even more flips.
- Moving the stop further away than the dot when price comes close.
Works well with
Questions traders ask
What are the standard Parabolic SAR settings?
A step of 0.02 and a maximum of 0.2, as Wilder set them. A smaller step, such as 0.01, makes the dots slower and flips less often.
Is Parabolic SAR a good indicator?
It is a good trailing stop in trends and a poor entry signal in ranges. Most traders pair it with a trend filter such as ADX or a moving average.
What does SAR stand for?
Stop and reverse. The dot is where you would exit, and when price reaches it the indicator reverses to the other side.
Can Parabolic SAR be used for scalping?
It can on 1 to 5 minute charts in a clear trend, but flips are very frequent and spreads take a larger share of each move. A trend filter is essential.