Parabolic SAR
Dots below the price mean an uptrend, dots above mean a downtrend, and when the price crosses the dots, they flip.
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Text version · Trend Indicators, lesson 7: “Parabolic SAR”
Dots below the price mean an uptrend, dots above mean a downtrend, and when the price crosses the dots, they flip.
A stop that keeps chasing price
Parabolic SAR dots below price mean an uptrend. Each new high makes the dots speed up toward price, like a trailing stop that only moves up.
Flips when crossed
When price falls through the dots below, they jump above price, signaling a downtrend; and vice versa. In a trend it follows closely, but in a range it flips back and forth.
Step and cap
By default each new high (low) adds 0.02 to the acceleration factor, up to 0.2. The bigger the step, the faster the dots chase and the tighter the stop, but the easier it is for a normal pullback to trigger a flip.
Key takeaways
- SAR dots below price: uptrend; above price: downtrend.
- Each time the trend makes a new high (or low), the acceleration factor steps up (default 0.02, capped at 0.2), pulling SAR toward price faster. It's often used as a trailing stop.
- When price crosses SAR, the direction flips. The bigger the step, the tighter it follows, and the more often it flips in a ranging market.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Choose "Up then down" and hover over the first "Flip short" marker: where did the SAR dots jump from, and to where?
- Play the "Uptrend" and watch the amber stop distance and the acceleration factor bar: how does the stop line keep tightening?
- Switch to "Sideways range": how many flips were there? What's the cumulative return of "Follow the SAR"?
- Set the acceleration step to 0.05: how do the number of flips and the return change?
Quiz and explanations
- 1. The SAR dots jump from below the price to above it. What does that mean?
- Answer: A signal that it's turning into a downtrend.A SAR flip is a trend reversal signal.
- 2. What's one of the most common uses of SAR?
- Answer: As a trailing stop.It keeps tightening as the trend goes on.
- 3. If you raise SAR's acceleration step from 0.02 to 0.05, it usually…
- Answer: Trails more tightly and flips more often in ranges.The bigger the step, the faster SAR chases price, and the more easily a normal pullback triggers it.
Terms in this lesson
- Parabolic SAR: Dots drawn above or below price that tighten as a trend speeds up and flip sides when price crosses them.
- stop-loss (Stop Loss): Automatically closes a position when price moves against you to a preset level, capping your maximum loss.