TrendTrend-following stop-and-reverse indicatorSAR

Parabolic SAR SAR

A trail of dots that flips sides to stop and reverse with the trend.

Quick answer: The Parabolic SAR, created by J. Welles Wilder in 1978, plots a trailing series of dots below price in an uptrend and above price in a downtrend, accelerating toward price over time and flipping sides when the trend reverses.

In simple words

Parabolic SAR — 'SAR' stands for Stop And Reverse — plots a dot on each bar that acts as a trailing stop. In an uptrend the dots sit below price and creep upward; in a downtrend they sit above price and creep down. The clever part is that the dots accelerate: the longer the trend runs, the faster they close in on price, tightening the stop to lock in gains. When price touches the dots, the trend is deemed over, the position stops out, and the dots flip to the other side to signal the reverse. It is a pure trend-and-exit tool, at its best in strong, sustained moves.

Parabolic SAR — visual

How Parabolic SAR looks on a chart

SAR dots sit below price in uptrends and above in downtrends, accelerating toward price as the trend matures. A touch flips the dots and signals stop-and-reverse.

Professional explanation

Stop and reverse, always in the market

Wilder designed SAR as an always-in system: you are either long or short, never flat. The dots are your stop, and when price hits them you do not just exit — you reverse to the other side. This makes SAR a self-contained trend-following method for trending markets, though the always-in feature is also its flaw in ranges, where it flips constantly and loses on both sides.

The acceleration factor

The heart of SAR is its acceleration factor (AF). It starts small (default 0.02) and increases by a step (0.02) each time price makes a new extreme in the trend's direction, up to a maximum (0.20). As the AF rises, the dots move toward price faster, so the stop tightens the longer and stronger the trend runs. This 'parabolic' tightening is what locks in profit as a move matures.

Two settings that shape behaviour

SAR has two inputs: the step (how fast the AF increases) and the maximum (how tight the AF can get). A larger step or maximum makes the dots accelerate faster and the stop tighter, giving earlier exits and more flips; smaller values give the trend more room. The defaults 0.02 and 0.20 are Wilder's originals and suit most markets, but the step can be tuned to how much room a trend needs.

Why it needs a trend filter

SAR's great weakness is the sideways market. Because it is always in and flips on every touch, a range chops it to pieces with a rapid series of losing reverses. Wilder himself paired SAR with his ADX to gauge trend strength — trading SAR only when a trend is present and standing aside otherwise. Used that way, SAR is a fine trailing-stop and trend tool; used blindly, it bleeds in ranges.

Formula

Parabolic SAR formula

SARₜ₊₁ = SARₜ + AF × (EP − SARₜ)

EP is the extreme point (highest high in an uptrend, lowest low in a downtrend). AF is the acceleration factor, starting at 0.02, stepping 0.02 per new extreme, up to 0.20.

SARₜ — The current SAR value (the dot's position)
EP — Extreme Point — the highest high (uptrend) or lowest low (downtrend) reached in the current trend
AF — Acceleration Factor — starts at 0.02, increases by 0.02 at each new extreme, capped at 0.20
Step / Max — The AF increment (0.02) and its cap (0.20)

How it is calculated

Identify the current trend direction and its extreme point (EP) — the highest high or lowest low so far.
Start the acceleration factor AF at 0.02, increasing it by 0.02 each time a new EP is made, up to 0.20.
Compute the next SAR = current SAR + AF × (EP − current SAR).
Plot the SAR as a dot below price in an uptrend or above price in a downtrend.
When price touches the SAR, flip the trend: swap sides, reset the AF, and set the new EP.

Interpretation & signals

Traders read SAR dots below price as an uptrend and above as a downtrend, use a price touch as a stop-and-reverse signal, and rely on the accelerating dots as a tightening trailing stop.

Buy / bullish signals

The SAR dots flip from above price to below it (bullish reversal).
Price closes above the last descending dot, triggering the flip.
In an uptrend, dots trail below price and confirm the trend continues.
The flip aligns with a strong ADX or higher-timeframe uptrend.

Sell / bearish signals

The SAR dots flip from below price to above it (bearish reversal).
Price closes below the last rising dot, triggering the flip.
In a downtrend, dots trail above price and confirm the trend continues.
The flip aligns with a strong ADX or higher-timeframe downtrend.

False signals to beware

In a sideways range, SAR flips on nearly every bar, producing continuous whipsaw losses.
Early in a new trend the dots are still close and can be hit by minor pullbacks.
A flip against a strong higher-timeframe trend often fails.

Settings, timeframe & conditions

Best settings

Step 0.02, maximum 0.20 (Wilder defaults)

Avoid

Trading SAR flips in a range without a trend filter

Works best in

Strong, sustained trends

Struggles in

Sideways, choppy ranges (constant flips)

Advantages & limitations

Advantages

Provides a clear, accelerating trailing stop.
Tightens automatically as a trend matures, locking in gains.
Unambiguous dots — easy to read trend direction.
A self-contained stop-and-reverse method in trends.

Limitations & disadvantages

Whipsaws relentlessly in ranging markets.
The always-in design forces trades even when flat would be better.
Lags at the start of a trend and can exit on shallow pullbacks.
No momentum or strength information on its own.

Combining Parabolic SAR with other indicators

Average Directional Index — Wilder's own pairing — use ADX to confirm a trend is strong enough before trading SAR flips, avoiding range whipsaws.
Exponential Moving Average — A higher-timeframe EMA sets the trend so you take only the SAR flips aligned with it.
Supertrend — SAR and Supertrend are both ATR/trend trailing tools; comparing them clarifies how each trails a stop differently.

Practical examples (Nifty & Bank Nifty)

NIFTY example

Nifty trends up and the SAR dots trail below price, creeping higher and accelerating as Nifty makes each new high, tightening the stop from 60 points away to just 20 as the move matures. When Nifty finally rolls over and touches the dots near 24,550, SAR flips above price — signalling the trader to exit the long and, in a pure SAR system, reverse short.

BANKNIFTY example

Bank Nifty's tendency to trend hard then chop shows both faces of SAR. In a strong directional session the dots trail beautifully and lock in a large move; but in a subsequent sideways, range-bound phase the dots flip above and below price almost every bar, chopping up a trader who keeps taking the reverses. The fix is Wilder's own: use ADX to trade SAR only when Bank Nifty is genuinely trending.

Common mistakes

Trading SAR flips in a sideways market — it whipsaws every bar.
Taking the always-in reverse instead of standing aside in a range.
Ignoring a trend filter like ADX that SAR was designed to pair with.
Expecting SAR to give momentum or targets — it only trails a stop.

Professional usage

Professionals use Parabolic SAR chiefly as a trailing-stop and trend-exit tool inside a trend they have already confirmed, typically with ADX or a higher-timeframe filter as Wilder intended. In a strong trend they let the accelerating dots ratchet the stop tighter to protect profits, and they take the flip as an exit signal. In ranges they simply switch it off, because its always-in, flip-on-touch design guarantees losses in choppy conditions.

Key takeaway

Parabolic SAR trails a series of accelerating dots that flip to stop and reverse with the trend — below price in uptrends, above in downtrends, tightening as the move matures. It is a superb trailing stop in strong trends and a whipsaw machine in ranges, so pair it with a trend filter like ADX.

Frequently asked questions

What is the Parabolic SAR?

The Parabolic SAR, created by J. Welles Wilder in 1978, is a trend-following indicator that plots dots below price in uptrends and above price in downtrends. The dots accelerate toward price and flip sides when the trend reverses, acting as a trailing stop.

What does SAR stand for?

SAR stands for Stop And Reverse, reflecting the indicator's design: when price touches the dots the position stops out and reverses to the opposite direction.

How does Parabolic SAR work?

It trails dots that move toward price using an acceleration factor which increases each time the trend makes a new extreme. When price touches the dots, the trend is deemed over and the dots flip to the other side.

What is the acceleration factor?

The acceleration factor (AF) controls how fast the dots close in on price. It starts at 0.02, increases by 0.02 at each new extreme, and is capped at 0.20, so the stop tightens as the trend matures.

What are the best Parabolic SAR settings?

Wilder's defaults are a step of 0.02 and a maximum of 0.20, which suit most markets. A larger step tightens the stop faster with more flips; a smaller step gives the trend more room.

Is Parabolic SAR good for intraday trading?

It can be used intraday in trending sessions, where the dots trail a tight stop, but it whipsaws badly in sideways periods. Intraday traders usually pair it with a trend filter.

Why does Parabolic SAR give false signals?

In range-bound markets price oscillates and touches the dots repeatedly, so SAR flips on nearly every bar, producing continuous whipsaw losses. It is designed for trends, not ranges.

Can Parabolic SAR be used as a stop-loss?

Yes, that is one of its main uses — the accelerating dots form a natural trailing stop that tightens as the trend runs, so many traders use the dot level as their stop-loss.

How is Parabolic SAR different from Supertrend?

Both are trailing trend tools, but SAR uses an accelerating factor on extreme points while Supertrend uses an ATR band. SAR is always-in and reverses; Supertrend flips on a close through its line.

Is Parabolic SAR a leading or lagging indicator?

It is a lagging indicator — the flip comes after the trend has turned. Its role is to trail a stop and define direction, not to predict reversals.

Does Parabolic SAR work on Bank Nifty?

Yes in trending phases, where the dots trail well, but Bank Nifty's choppy ranges cause frequent whipsaw flips. Wilder's recommended pairing with ADX helps filter those out.

Voice search & related questions

Natural-language questions people ask about Parabolic SAR.

What is the Parabolic SAR in simple words?

It is a line of dots that sits below price when the trend is up and above price when it is down, and flips to the other side when the trend reverses, acting as a trailing stop.

What does SAR mean in Parabolic SAR?

SAR means Stop And Reverse — when price hits the dots you exit and switch to a trade in the opposite direction.

Is Parabolic SAR good for day trading?

It works well when a market is trending during the day, trailing a tight stop, but it gives many false signals in sideways markets, so it is best used with a trend filter.

What are the best SAR settings?

The standard settings are a step of 0.02 and a maximum of 0.20, which were Wilder's originals and work for most markets.

Sources & references

Last reviewed 8 July 2026. Educational content only — not investment advice.