Parabolic SAR — Stop and Reverse

Overview

Parabolic SAR (Stop and Reverse) plots dots above or below price to indicate trend direction and potential reversal points — it is one of the simplest trend-following indicators to use. Combine it with the ADX to filter out low-quality signals in ranging markets and improve your win rate. It also doubles as a dynamic trailing stop; read our stop-loss guide for best practices on protecting your capital. Explore more trend tools in our full indicator guide library.

How It Works

Parabolic SAR uses an acceleration factor (starting at 0.02, incrementing by 0.02 per new extreme, capped at 0.2). Dots below price = uptrend; dots above = downtrend. When price touches the dots, the trend reverses.

Key Signals

• Dots flipping from above to below price signals a new uptrend.
• Dots flipping from below to above signals a new downtrend.
• The dots can be used as a trailing stop-loss that automatically tightens.
• Combined with ADX, Parabolic SAR works best when ADX > 25 (strong trend).

Common Mistakes

• Using Parabolic SAR in sideways markets — it generates constant false reversals.
• Ignoring the acceleration factor settings — defaults work well for most markets.
• Using it as the sole entry signal without trend confirmation.