Parabolic SAR Guide

The Parabolic Stop and Reverse (SAR) is a trend-following indicator that helps you follow trends and determine your exit points.

What Is The Parabolic SAR?

The Parabolic SAR appears as dots above or below the price. When the dots are below the price, the trend is bullish. When they are above the price, the trend is bearish. When the dots flip sides, this gives a potential entry or exit signal.

How To Use The Parabolic SAR?

1. Trend Following

In an uptrend, you follow the dots below the price. As long as the dots remain below the price, you stay in the trade. When they move above the price, you close your position.

2. Trailing Stop

The Parabolic SAR is an excellent trailing stop. As the trend progresses, the dots move closer to the price, protecting your profit.

3. Entry Signals

When the dots switch from below to above, it is a sell signal. When they switch from above to below, it is a buy signal.

Settings

The default setting is step 0.02 and maximum 0.2. A larger step makes the indicator more sensitive; a smaller step makes it slower.

Limitations

• The Parabolic SAR performs poorly in range-bound markets
• It gives many false signals in sideways markets
• Use a trend filter to avoid false signals

Tips

• Combine with the ADX to assess trend strength
• Use on multiple timeframes
• Combine with moving averages for confirmation

Conclusion

The Parabolic SAR is a simple but effective indicator for trend following. It works best in strong trends and as a trailing stop.