Parabolic SAR is one of the most widely used trend-following indicators in forex and other financial markets. Originally introduced by J. Welles Wilder in 1976, its name stands for Stop and Reverse (SAR), reflecting its dual role: identifying the current trend direction and signaling potential reversal points to close or reverse positions.
When price is trending upward, the Parabolic SAR dots appear below the price chart; during a downtrend, they appear above. A crossover — where the SAR dots switch sides relative to price — signals a potential trend reversal and serves as an entry or exit trigger.
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FAQ
What does Parabolic SAR stand for?
It stands for Stop and Reverse — indicating both a trailing stop level and a signal to reverse position direction upon crossover.
How is Parabolic SAR calculated?
It uses an acceleration factor (AF) and extreme point (EP) in a formula that adjusts dot placement based on trend strength and duration: SARn+1 = SARn + AF × (EP − SARn).
Can Parabolic SAR be used alone for trading decisions?
No — it works best when combined with trend confirmation tools (e.g., ADX or moving averages) to avoid false signals in sideways markets.
