How does the Parabolic SAR work?

Each dot is a stop level for the bar ahead. In an uptrend the dot sits under the lows and rises every bar; it never moves down. In a downtrend it sits above the highs and only falls. The dots start slowly and speed up as the trend makes new extremes, which gives the curve the parabolic shape in the drawing at the top of the page.

When price touches or crosses the dot, two things happen at once: the current trend is stopped out, and SAR starts tracking the opposite direction. Wilder built it as a stop-and-reverse system that is always long or short. The flip is triggered by price trading through the dot during the bar, not only by a close.

The Parabolic SAR formula and the acceleration factor

Each new dot comes from one line of arithmetic: next SAR = SAR + AF × (EP − SAR).

Hypothetical uptrend: SAR is $95.00, the highest high is $100.00 and AF is still 0.02, so the next dot is 95.00 + 0.02 × 5.00 = $95.10. Nine new highs later, AF has reached its 0.20 cap; with SAR at $97.00 and EP at $104.00, the next dot is 97.00 + 0.20 × 7.00 = $98.40. Same formula, a step 14 times bigger.

Two more rules: a dot is never placed inside the range of the previous two bars, and on a flip the new dot starts at the old EP while AF resets to its starting value. On TradingView the inputs are Start (0.02), Increment (0.02) and Max Value (0.2), Wilder’s original values. Raising them makes the dots hug price and flip more often; lowering them gives the trend more room but exits later.

EP (extreme point)
The highest high of the current uptrend, or the lowest low of the current downtrend.
AF (acceleration factor)
The share of the gap between SAR and EP that the dot closes each bar. It starts at 0.02 and rises by 0.02 each time the trend makes a new EP, up to a maximum of 0.20.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn bar chart of the acceleration factor (AF) over the number of new highs in the trend, from 0 to 10: the bars start at 0.02 and climb one 0.02 step per new high until the bars for 9 and 10 reach a red dashed cap at 0.20, labeled capped at the max. A yellow box shows next SAR = SAR + AF × (EP − SAR), and below it the example 95.00 + 0.02 × (100 − 95) = 95.10.

How to use the Parabolic SAR as a trailing stop

Many traders use SAR for exits rather than entries: they enter on their own setup, then let the dots trail the stop. In the drawing below, the long starts when price trades up through the red dots, the green dot under each candle is the stop, and the trade ends when price trades back through it.

Hypothetical: you buy at $98.50 and the first dot under price is $96.10, so you size the trade for $2.40 of risk per share. The stop rises every bar, and when a pullback finally reaches the dot at $103.20, the long closes about $4.70 above the entry, before costs. The catch: the exit always comes after the turn, so part of the move is given back, and a gap can fill well past the dot. The stop loss and take profit guide covers stops and R multiples in general.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn long trade: red dots above falling candles until price trades up through them and a buy triangle prints, labeled long on the flip; green dots then rise under each candle, with an arrow and the note the stop is the dot: it only moves up. At the top a red candle trades down through the dots, a sell triangle prints and red dots reappear above, labeled out when price trades through.

Why the Parabolic SAR whipsaws in sideways markets

SAR assumes there is always a trend. In a range, price swings far enough to touch the dots on both sides, so the indicator flips again and again, and each flip buys near the top of the range or sells near the bottom. The drawing below shows four flips inside one range.

A pure stop-and-reverse system takes every one of those flips, and the choppier the range, the more they cost. That is the main reason not to use SAR alone, and why many traders switch to range tactics or stand aside when the market goes sideways.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn sideways range between two dashed lines: SAR dots switch from above the candles to below and back, and each flip is ringed in red under the note flip after flip: whipsaws. Below, an ADX line runs flat under a dashed level at 20, with the note no clear trend.

Pairing the Parabolic SAR with ADX and other trend filters

The fix is to ask a different question first: is there a trend at all? The ADX indicator measures trend strength without direction. A common rule of thumb is to follow SAR flips only when ADX is above about 20 to 25 and rising, and to ignore them when it is low. Those levels are conventions, not laws.

Other filters do the same job: take only flips in the direction of a rising 50-day moving average, or only longs when the higher timeframe trends up (multi-timeframe analysis). Every filter cuts whipsaws and also delays or skips some good trades. Whatever you use, size each trade from the distance to the dot with the position size calculator.

The Supertrend indicator is a close cousin: it also trails price and flips, but sets its distance with ATR instead of an accelerating factor. Neither predicts the turn; both react to it, which is how trend following works.