Parabolic SAR

The Parabolic SAR (Stop and Reverse) places dots above or below price. In an uptrend, dots are below price and trail upward; in a downtrend, dots are above price and trail downward. When price crosses the dots, the trend is considered reversed. SAR is used for trailing stops and trend identification.

SAR starts at the extreme point (high or low) and moves toward price each period. The acceleration factor (default 0.02) increases as new extremes are made, making the SAR catch up to price. When price crosses the SAR, the position flips and SAR starts from the new extreme.

Signals

1. Dots below price: Uptrend. Consider longs. Use dots as trailing stop.
2. Dots above price: Downtrend. Consider shorts. Use dots as trailing stop.
3. Flip: When price crosses the dots, trend may have reversed. SAR flips to the other side.
4. Best in trends: SAR works poorly in ranging markets—many whipsaws.

Default: 0.02 acceleration, 0.2 maximum. Increase acceleration (e.g. 0.03) for faster response; decrease for slower. Match to your timeframe.

Do not use SAR in choppy or ranging markets—you will get many false flips. Do not rely on SAR alone for entries; combine with trend confirmation. SAR can lag in fast moves.