Parabolic SAR

What Is the Parabolic SAR?

The Parabolic SAR (Stop and Reverse), created by J. Welles Wilder, plots a series of dots on the chart. When dots appear below the price, the trend is bullish and the dots act as a trailing stop-loss level. When dots flip above price, the trend has reversed to bearish. The "parabolic" name comes from the fact that the dots accelerate (move closer to price) as the trend extends, eventually triggering a reversal signal.

How to Trade with Parabolic SAR

The simplest strategy: go long when dots flip from above to below price, and go short when they flip from below to above. Place your stop-loss at the current dot level, which moves with each new bar. This provides a built-in trailing stop that automatically tightens as the trend progresses. On EUR/USD daily charts, this approach captures major trend moves while the accelerating stop-loss locks in profits.

Settings and Limitations

The default settings are an acceleration factor of 0.02 with a maximum of 0.20. Lower acceleration values (0.01) make the indicator slower and further from price, generating fewer but later signals. Higher values (0.03) make it more sensitive but prone to whipsaws. Parabolic SAR's biggest weakness is sideways markets where it flips constantly. Combine it with a Moving Average for trend confirmation: only take SAR buy signals when price is above the 50 EMA, and sell signals when below.