Parabolic SAR
Trend-following stop-and-reverse indicator that plots dots above (downtrend) or below (uptrend) price, accelerating as the trend matures.
Formula
SAR_t = SAR_{t-1} + AF × (EP − SAR_{t-1}); AF starts at 0.02, increments by 0.02 each new extreme, max 0.20Parabolic SAR (Stop and Reverse) places a dot below each bar in an uptrend and above each bar in a downtrend. When price touches the dot, the indicator flips to the opposite side — signalling a potential trend reversal and an automatic stop level.
The dot's distance from price is controlled by an acceleration factor (default 0.02, max 0.20) that increases each time a new extreme is reached. This causes the SAR to accelerate toward price as a trend matures, tightening the trailing stop. In choppy markets Parabolic SAR whipsaws frequently — it works best in clearly trending conditions.
Related Terms
Average Directional Index (ADX)
Non-directional trend-strength gauge (0–100); readings above 25 indicate a trending market, below 20 suggest a range.
IntermediateAverage True Range (ATR)
Volatility measure averaging the greatest of: current high–low, current high–prior close, or current low–prior close over n periods (default 14).
IntermediateDirectional Movement Index (DMI)
System of +DI and −DI lines measuring upward and downward price movement; the gap between them, normalised as ADX, quantifies trend strength.
AdvancedDonchian Channel
Breakout envelope plotting the highest high and lowest low over the past n periods (typically 20); the midline is their average.
IntermediateExponential Moving Average (EMA)
Moving average that weights recent closes more heavily via an exponential multiplier, reacting faster to price changes than the SMA.
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Intermediate