In this article
After this article, you can
- Distinguish SAR movement from an increase in AF or Close.
- Check whether the prior-Low constraint changes the raw recurrence.
Terms at hand: Trading Plan · Backtesting · Commission · Drawdown · spread (bid-ask spread) · Stop loss
A SAR dot can rise while Close stays unchanged, and a dot can change sides without a lasting price reversal. To reproduce it, follow the indicator state: its prepared threshold, extreme point and acceleration factor. The worked example below separates that calculation from a strategy decision and an executed order.
What Wilder's SAR is and what the name means
Parabolic SAR means Stop And Reverse. It supplies a changing indicator level that can be used in a stop-and-reverse strategy. Displaying it alone does not submit orders or reverse a position; that requires a separately implemented trading rule or automation.
SAR dots sit below prices in an upward indicator state and above them in a downward state. A flip means that the implementation has changed state. It does not establish that a persistent opposite trend has begun, nor does it identify an executable stop price.
SAR can move while Close stays fixed
A new extreme increases acceleration under the rule, but absence of a new extreme does not stop recurrence.
Scroll sideways to see the full diagram
Hypothetical initialised uptrend state: Q₀ = 100, EP = 110, AF = 0.10. The next 10 candles have O = C = 109, H = 110, L = 108; prior Lows are also 108. Update Q to Q + AF × (EP − Q). All thresholds remain below 108, so no constraint or reversal applies in this model; equal High does not increase EP or AF. TradingView: Parabolic SAR describes recurrence, AF changes at new extremes and prior-Low/High constraints.
The EP gap becomes 90% of its previous size each step. Thus Qₖ = 110 − 10 × 0.9ᵏ. After 10 steps, the threshold has risen about 6.5132 although Close has not risen. Do not confuse dot movement with a price change or AF increase.
The formula and the acceleration factor (AF) — the heart of the indicator
A simplified SAR recurrence is next SAR = current SAR + AF × (EP − current SAR). For an upward state, EP is the highest High since that state began; for a downward state it is the lowest Low, so EP − SAR is normally negative. Common settings start AF at 0.02, increase it by 0.02 on a new extreme and cap it at 0.20. A complete implementation also applies prior-bar bounds, reversal and reset rules; record those settings before comparing results.
AF does not rise simply because another bar has elapsed. Under the TradingView settings discussed here it starts at 0.02, increases by 0.02 on a new extreme and is capped at 0.20. An unchanged EP still allows the recurrence to move SAR. These defaults establish a calculation, not an optimal setting or a measured reversal probability.
Three ways traders use SAR in practice
Using SAR as a trailing stop requires an explicit order rule: which completed or live bar supplies the dot, when the order is amended and how the provider triggers it. SAR does not keep a constant pip offset. Its design does not establish that it retains more profit than an ATR-based trail or a fixed-distance rule.
A strategy may use a flip to exit, reverse or merely flag a review. TA-Lib 0.6.4 reverses its upward state when Low ≤ SAR and its downward state when High ≥ SAR, then resets AF. TradingView documents strict comparisons. Neither condition is an instruction to open the opposite position unless a separate strategy says so.
A model rule can combine SAR with ADX or moving averages, but a threshold such as ADX 25 is an additional choice, not part of SAR. Test the entry, stop, exit and costs of the complete trend-following rule; adding a filter alone does not demonstrate an advantage.
A worked state: clamping and reversal
These invented prices have no instrument or pip unit. We continue an already initialised upward state after bar 9: the threshold for bar 10 is 100, EP 110, AF 0.04; bar 9 has High 110 and Low 100.2. Start and increment are 0.02, maximum 0.20. Evaluate reversal against the prepared threshold first, output the current SAR, update EP/AF and prepare the next threshold. Completed High/Low observations are assumed.
| Bar: High / Low | State after evaluation | Displayed SAR | EP / AF | Raw next threshold | Clamped threshold |
|---|---|---|---|---|---|
| 10: 112 / 100.5 | Up | 100 | 112 / 0.06 | 100.72 | 100.2 |
| 11: 111 / 100.4 | Up | 100.2 | 112 / 0.06 | 100.908 | 100.4 |
| 12: 111.5 / 100.4 | Down: Low equals threshold | 112 | 100.4 / 0.02 | 111.768 | 111.768 |
| 13: 111 / 99 | Down | 111.768 | 99 / 0.04 | 111.25728 | 111.5 |
Bar 10 stays above 100. Its new High raises EP to 112 and AF to 0.06. The raw next result is 100 + 0.06 × (112 − 100) = 100.72, but the lower Low of bars 9 and 10 clamps it to 100.2. Bar 11 adds no new High: raw 100.908 is clamped to 100.4.
Bar 12 has Low exactly 100.4. TA-Lib reverses, displays SAR 112 and resets EP/AF to 100.4/0.02. The next threshold is 111.768. Bar 13 stays below it and makes a new Low 99, raising AF to 0.04. The raw result 111.25728 is bounded upward to the higher High of bars 12 and 13: 111.5. None of these indicator outputs is a modelled fill price.
Startup check: in TA-Lib 0.6.4, use High [101, 101, 102] and Low [99, 99, 100]. Index 0 is warmup; the next two SAR outputs are 101 and 99. Reflect prices by p′ = 200 − p, exchanging High and Low: reflected High [101, 101, 100], Low [99, 99, 98]. Its outputs are 101 and 101. At index 1, 200 − 101 is 99, not the reflected output 101. Both series start with identical first bars, so the tie selects upward state and equality immediately flips it. This is a startup counterexample to assumed mirror symmetry, not evidence of general asymmetry or a software error.
The most common mistakes made with SAR
- Confusing the dot with a confirmed trend. A flip records an indicator-state change. A filter has separate rules and can also fail.
- Changing AF without recording the implementation. Preserve the seed, update order, equality comparisons, clamping and rounding before comparing parameters.
- Treating the dot as an automatic stop. A buffer changes the strategy and its risk. It is neither prohibited nor validated by the indicator formula; specify the trigger side and execution assumptions.
- Equating indicator reversal with a trade reversal. Specify whether the strategy exits, opens another position or waits; include spread, commissions and possible slippage.
- Using future bar extrema. A dot dependent on a completed High/Low was not available at that bar’s opening. Keep data time and decision time separate.
What to do tomorrow to start using Parabolic SAR sensibly
Start with a calculation log that can be checked against the chosen platform. A short exercise can reveal a rule mismatch, but it does not establish a profitable trading system.
- Record the platform/library, price feed, timeframe, first available bar and AF settings. Compare the same High/Low inputs before attributing different dots to an error.
- Recalculate the four continuation rows above. Change bar 13 Low from 99 to 100.6: EP stays 100.4, AF 0.02 and the raw next threshold is 111.54064, which already exceeds the required High bound 111.5.
- Check the first output and an exact threshold touch against the implementation. Document whether the comparison uses equality and whether its recurrence is rounded.
- For a proposed strategy, record when each input becomes available and when any order can be submitted. Include provider trigger rules, costs and adverse fills separately from indicator values.
- Compare SAR and an ATR trailing stop on the same data and execution assumptions. Keep a separate evaluation sample instead of selecting parameters by the best result on the fitting sample.
Check your understanding
One short exercise
About 2 min · you can try again
The threshold is 100, EP 110 and AF 0.10. Next High is again 110 and Low 108. What does one unrestricted update give?
- 101 with unchanged AF 0.10.
- 100 because there is no new High.
- 102 because AF must rise to 0.20.
Check the answer and explanation
101 with unchanged AF 0.10.
EP − Q is 10; 10% adds 1. Equal High is not a new extreme, so AF remains 0.10.
Frequently asked
Which AF settings should I use — 0.02 and 0.20 or something else?
The TradingView configuration described here starts AF at 0.02, increases it by 0.02 on a new extreme and caps it at 0.20. These are defaults, not a proven optimum for a pair or timeframe. Record all three values and the platform’s initialisation, touch, clamping and rounding rules. Parameter comparison should use the same inputs and execution assumptions, with evaluation data kept separate from fitting; no universal minimum trade count follows from the formula.
What can repeated SAR flips establish?
If a strategy trades every SAR flip, repeated direction changes can produce frequent transactions and costs. A flip does not certify a persistent reversal. An ADX threshold such as 25 is a separate model choice, not part of SAR, and cannot guarantee profitable trades. Specify how a proposed filter and execution rule work, then compare complete results with costs.
Can I use Parabolic SAR as my only entry signal?
You can define a rule that enters on a flip, but displaying SAR alone submits no order. Specify whether the flip is evaluated on a completed bar or during formation, how direction and size are chosen, and when the order is executable. A separate filter can change the rule; it does not prove that a trend exists or remove execution costs and risk.
How is Parabolic SAR different from a plain pip-distance trailing stop?
A fixed-distance trail maintains a specified offset from its chosen trigger price when it updates. In a hypothetical EUR/USD example, 50 pips below 1.1050 is 1.1000, assuming a pip of 0.0001. SAR instead depends on prior state, EP, AF and bounds. New extremes can raise AF, but elapsed time alone does not, and the dot can move even with unchanged Close. The formula does not measure reversal probability or establish that SAR preserves more profit. Compare complete stop rules and execution assumptions.
Sources & bibliography
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J. Welles Wilder New Concepts in Technical Trading Systems · Trend Research, 1978; presents Wilder's Parabolic Time/Price System, including SAR and the acceleration factor. www.google.com ↗
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StockCharts ChartSchool Parabolic SAR - definition and calculation · Explains the formula, acceleration factor and conventional interpretation of Parabolic SAR. chartschool.stockcharts.com ↗
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Corporate Finance Institute Parabolic SAR - a trading guide · Explains uses and limitations of the Parabolic SAR indicator. corporatefinanceinstitute.com ↗
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TA-Lib TA_SAR source code — C library v0.6.4 · Defines startup, equality reversal, EP/AF reset and two-bar bounds. The article’s synthetic outputs are independently emulated from this source, without a new native-library run. raw.githubusercontent.com ↗
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TradingView Parabolic SAR (SAR) · Documents recurrence, start/increment/maximum settings, prior-Low/High bounds and a Close-based startup. Its strict reversal description differs from the TA-Lib touch rule. www.tradingview.com ↗
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MetaQuotes Parabolic SAR — MetaTrader 5 · Provides the signed recurrence and distinguishes an indicator from an Expert Advisor that implements trades. Used for that scope, not as proof of trading performance or an exact AF-update algorithm. www.metatrader5.com ↗
