A trend-following indicator that plots dots above price during downtrends and below price during uptrends. Each dot's position is computed from an "acceleration factor" that increases as the trend extends — making Parabolic SAR primarily a trailing-stop system rather than an entry signal generator. Developed by Welles Wilder in 1978.
What it measures
- Trend direction. Dots below price = uptrend. Dots above price = downtrend.
- Accelerating trailing stop. As a trend extends, the SAR value moves toward price faster — locking in profits aggressively as the move continues.
- Trend reversal points. When price crosses the SAR dot, the trend flips and the dots reset on the opposite side.
Formula
Inputs in AlgoLift
| Setting | Default | Range | Notes |
|---|---|---|---|
| Initial AF | 0.02 | 0.001–0.5 | Starting acceleration factor when a new trend begins. |
| AF Increment | 0.02 | 0.001–0.5 | How much AF increases per new extreme. |
| Max AF | 0.20 | 0.01–1.0 | Maximum cap for AF — prevents over-acceleration in extended trends. |
Recommended settings
- (0.02, 0.02, 0.20) — default: Wilder's original. Standard for most strategies.
- (0.01, 0.01, 0.10): Less aggressive — wider stops, fewer false flips.
- (0.04, 0.04, 0.30): More aggressive — tighter stops, more frequent flips.
The three parameters interact tightly. Adjusting only Initial AF and Max AF (keeping Increment = Initial) preserves the indicator's character.
Outputs in AlgoLift
| Handle | Type | Plotted | Notes |
|---|---|---|---|
| SAR Value | Numeric | Always | The dot position. Plotted as dots, not a line. |
| Direction | Numeric | On select | 1 = uptrend, −1 = downtrend. |
| Is Flipped | Numeric | On select | 1 on the bar where the trend just flipped. |
| Acceleration Factor | Numeric | On select | Current AF value. Reflects how aggressive the trailing stop currently is. |
| Extreme Point | Numeric | On select | The highest high (uptrend) or lowest low (downtrend) of the current trend. |
How to read it
- Dots below price: Uptrend in progress. SAR value is the current trailing stop level.
- Dots above price: Downtrend in progress. SAR is the trailing stop above.
- Dot position relative to price: The gap narrows as AF increases. Wide gap = early in trend; narrow gap = trend has extended.
- AF rising: Trend is making new extremes — momentum healthy. AF accelerating means the stop is tightening.
- AF at Max: Trend has been extending for a long time — proceed with caution; trailing stop is now very tight.
Parabolic SAR is primarily a trailing-stop system, not an entry signal generator. Its dot flips fire too often in chop to be reliable entries. The right use is as the exit/stop side of a strategy whose entry comes from elsewhere.
Best in / worst in
Best in strong, persistent trends — the longer the trend extends, the more value SAR's acceleration delivers by locking in profit. Excellent on instruments that produce sustained directional moves (NQ, ES during trending months, currency futures in regime).
Worst in sideways chop — SAR flips constantly, producing the classic "death by a thousand whipsaws" pattern. Also weak on instruments with frequent gaps, where price can jump past the SAR value without triggering a normal flip.
Three setups
1. SAR as a trailing stop (primary use)
Take entries from another system (MACD, EMA crossover, breakout) — use SAR's current value as the trailing stop.
- Long entry from external trigger: Use SAR Value as the stop level via Set Stop Loss.
- Short entry from external trigger: Same — SAR value is now above price.
- Position closes when: Price reaches SAR (which becomes the new SAR for the opposite direction).
The tightening behavior locks in profit aggressively as the move extends.
2. SAR flip as entry (with strong regime filter)
The flip can be a primary entry — but only with strict filters.
- Long: Is Flipped = 1 AND Direction = 1 AND ADX/DMI > 25 (trending regime).
- Short: Symmetric with Direction = −1.
The ADX filter is essential. Without it, this strategy bleeds in every chop window.
3. SAR for regime detection
Use Direction output as a binary regime flag for unrelated strategies.
- Long-only mode: Direction = 1.
- Short-only mode: Direction = −1.
A simple regime classifier — though SAR's tendency to flip in chop means it's noisier than ADX-based or KAMA-based regime detection.
Advanced patterns in AlgoLift
SAR as the trailing exit + ATR for the initial stop. Take entry from any system, set the initial stop at entry − 1.5×ATR (a fixed-distance protective stop). Then also track SAR — once SAR's value is closer to price than the ATR stop, switch the stop to the SAR value. The pattern combines a safety floor (ATR) with adaptive tightening (SAR).
Scale out as SAR's Acceleration Factor reaches Max AF. When AF reaches Max (0.20 by default), the trend has been extending for a while. Use this as a partial profit-taking signal — exit 50% of the position via Set Target Profit, let the rest run with the SAR stop.
SAR Is Flipped for scale-in entries. In an established trend with another system, use SAR's Is Flipped event after a counter-pullback as a re-entry signal. The pullback caused SAR to flip against your position briefly, then back in your favor — adding here often catches mid-trend continuation.
Common mistakes
- Treating SAR as a primary entry signal without filters. SAR flips in chop relentlessly. Without an ADX or trend filter, this approach loses continuously.
- Adjusting parameters mid-strategy. SAR's behavior is non-linear with AF. Tweaking the Initial AF from 0.02 to 0.025 isn't a small change — it can radically alter the indicator's flip frequency.
- Using on very-short timeframes. SAR was designed for daily charts. On 1-minute bars, it produces noise rather than signal.
- Ignoring the Acceleration Factor output. AF is information — it tells you how mature the current trend is. Strategies that read only SAR value miss this.