Parabolic SAR

Parabolic SAR (Stop and Reverse), developed by J. Welles Wilder, is a trend-following indicator appearing as series of dots on chart, identifying potential trend reversal points and providing trailing stop levels. SAR dots below price indicate uptrend, above price indicate downtrend.

Types

Parabolic SAR works best in trending markets, generates frequent false signals in ranging markets. SAR dots serve as excellent trailing stops, automatically adjusting as trend develops. Many traders combine Parabolic SAR with ADX, using SAR signals only when ADX > 25 (strong trend). SAR reversal signals can be used to close existing positions or open reverse positions. In strong trends, SAR dots accelerate, reflecting strengthening trend momentum.