Trend

Parabolic SAR indicator: settings and signals

Parabolic Stop And Reverse

Parabolic SAR marks with dots the level at which a position should be reversed, and pulls that level up with acceleration.

What the indicator looks like on a real chart

Closing priceSAR (green below price, red above)

The only indicator drawn as dots rather than a line. The dots sit below price in a rising phase and jump above it at a reversal — that flip is the signal. In a range you can see the dots hopping back and forth almost every bar: the indicator is useless there.

Data: EUR/USD, daily bars, 2025-06-16 — 2026-07-20. The indicator is computed over 400 bars; the chart shows the last 180. Quote source: Binance Spot REST API (api.binance.com/api/v3/klines).

Effectiveness by market regime
Regime	Score
Trending market	60
Range	22
High volatility	41
Low volatility	46

What the indicator actually measures

SAR stands for stop and reverse: the indicator is conceived not as an entry generator but as a mechanism for trailing an open position. It is always in the market — either in a long phase or a short one; there is no intermediate state.

The key element is the acceleration factor. Each time the move makes a new extreme, the factor increases by a step, and the dots begin to catch up with price ever faster. That is exactly why the trajectory looks parabolic: the longer a trend lasts, the more tightly SAR presses against price.

The flip side is obvious on the chart: in a ranging market the dots jump over price almost every bar. This is not a fault but a direct consequence of the construction — the indicator must be on one side of price and is forced to reverse on every change of direction.

Formula

SAR(t+1) = SAR(t) + AF × (EP − SAR(t)), where AF is the acceleration factor and EP the extreme point

A new value is obtained by shifting the previous one toward the extreme by a fraction set by the acceleration factor. The factor grows in steps of 0.02 with each new extreme and is capped at 0.2, otherwise the dots would catch up with price too quickly.

Standard settings

0.02

Initial AF

0.2

Maximum AF

0.02

AF increment step

Standard parameters
Parameter	Value
Initial AF	0.02
Maximum AF	0.2
AF increment step	0.02

The step of 0.02 and the cap of 0.2 were proposed by Wilder. Increasing the step makes the trailing more aggressive and leads to an earlier exit from the position; decreasing it gives the move more room at the cost of giving more profit back to the market.

Implementation code (MQL5)

parabolic_sar.mq5

double sar = iSAR(_Symbol, PERIOD_H4, 0.02, 0.2);
 
if(Bid < sar && position.Type() == POSITION_TYPE_BUY)
{
  trade.PositionClose(_Symbol); // trend reversal — close the long
}

When the indicator stops working

Limitations

In a range it produces a continuous series of false reversals — it is the indicator in the set most vulnerable to a flat market.
It has no concept of "out of the market": it is always in one of two phases, even when there is nothing to trade.
It does not account for volatility: the distance to price is determined only by time and extremes, not by the range of the bars.

Common mistakes in use

Using SAR to enter a position. It was designed as a trailing and exit tool, not for finding an entry point.
Applying it without a trend filter. In a ranging market a series of reversals can eat up the deposit through commissions and small losses.
Treating a reversal of the dots as a forecast. A dot is a stop level, not a prediction of direction.
Accelerating the factor in the hope of more responsive trailing, only to be knocked out of the position on the very first pullback.

Who needs this and why

Useful to traders who have already entered by another system and want a mechanical rule for pulling up the stop in a trending move. As a standalone strategy it works poorly.

Frequently asked questions

Why does SAR reverse so often in a range?

Because by construction the indicator must be either above or below price and switches on every crossing. In a range price crosses the level constantly, and switches follow one after another. This is a limitation of the construction; it cannot be removed with settings.

Can I enter the market on a SAR signal?

Not recommended. Wilder created the indicator as a mechanism for trailing an already open position — hence the name stop and reverse. A separate tool is needed to find an entry, and SAR is attached after the position is open.

What changes if I increase the acceleration step?

The dots will catch up with price faster, the stop will be pulled closer, and the exit will happen earlier. This reduces the profit given back on reversals but at the same time raises the risk of being knocked out by an ordinary pullback within a continuing trend.

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