Parabolic SAR
A trend-following indicator drawn as dots on the price chart. The dots trail price, speed up as a trend runs, and switch sides when it reverses.
What the Parabolic SAR is.
A row of dots that follows a trend and flips to the other side of price when the trend turns.
SAR stands for stop and reverse. The indicator places one dot per bar, below price in an uptrend and above price in a downtrend.
Each new dot moves closer to price. The longer a trend runs, the faster the dots catch up. That curved, speeding-up path gives the indicator its name.
When price crosses the dots, they flip to the other side. The flip marks the point where the indicator switches from an uptrend reading to a downtrend reading, or back.
J. Welles Wilder Jr. introduced it in 1978. He designed it as a trailing stop that tightens as a trend matures.
How it is calculated.
Each dot is worked out from the one before. Your platform does the maths for you.
Start at a recent extreme.
In an uptrend, the first dot sits at a recent low. In a downtrend, it sits at a recent high.
Track the extreme point.
The extreme point, or EP, is the highest high of the current uptrend, or the lowest low of the current downtrend.
Move the dot towards it.
Each new dot closes part of the gap to the EP. That part is the acceleration factor, or AF, which starts at 0.02.
Speed up, then flip.
Each new extreme raises the AF by 0.02, up to 0.20. When price crosses the dots, the new SAR starts at the old EP and the AF resets.
AF starts at 0.02 and rises by 0.02 at each new extreme point, up to 0.20
EP = highest high in an uptrend, lowest low in a downtrend
One more rule keeps the dots behind price. In an uptrend, a dot can never sit above the lows of the previous two bars. In a downtrend, the reverse applies.
How to read it.
Four ways traders use the dots. None of them is a signal on its own.
Which side the dots are on.
Dots below price describe an uptrend. Dots above price describe a downtrend. The flip from one side to the other is the change.
A trailing stop.
Some traders place a stop-loss at or near the latest dot and move it every bar. The stop tightens as the trend runs.
How fast the dots close in.
Dots that close in quickly mean the trend has made many new extremes. The acceleration factor has risen, so the dots now sit close to price.
With a trend filter.
In a sideways market, the dots flip again and again. Many traders only act on flips when a filter, such as the ADX, shows a trend.
Common mistakes.
Where traders new to the Parabolic SAR most often go wrong.
Using it in a sideways market. In a range, the dots flip often, and many of those flips come just before price turns back.
Treating every flip as a reason to reverse a position. The indicator flips mechanically. It knows nothing about news, levels or context.
Raising the step to make it faster. A higher step makes the dots hug price, so normal pullbacks cause more flips.
Forgetting that it always gives a reading. The SAR shows an uptrend or a downtrend at every bar, even when the market has no trend.
Using it on MetaTrader 5.
The Parabolic SAR is one of MT5’s built-in indicators, on desktop, web and mobile.
Open a chart.
In MetaTrader 5, open the instrument and timeframe you want to study.
Add the indicator.
Go to Insert, then Indicators, then Trend, and choose Parabolic SAR.
Check the settings.
The defaults are Step 0.02 and Maximum 0.2. Leave them as they are while you learn how the dots behave.
Save it as a template.
Right-click the chart, choose Templates, then Save Template, so you can apply the same set-up to other charts.
Questions, answered.
What traders ask most about the Parabolic SAR.
01What does SAR stand for?
02Who created the Parabolic SAR?
03What do the step and maximum settings do?
04Why does it keep flipping?
05Can I practise with it first?
Practise it on a demo.
Add the Parabolic SAR to a free MT5 demo chart and watch where the dots flip before you trade with real money.
Trading CFDs on a live account puts your capital at risk and you can lose money. A demo does not.