Parabolic SAR Indicator Explained

What the Parabolic SAR shows

Parabolic SAR stands for "stop and reverse". J. Welles Wilder designed it. It is a trend-following indicator that draws a dot for every bar on the chart:

• Dots below price mean the indicator treats the market as rising.
• Dots above price mean it treats the market as falling.
• When price touches or crosses the dots, they flip to the other side. This is the "stop and reverse" point.

As a trend continues, the dots move closer to price at a faster pace. That speed-up gives the line its curved, parabolic shape. Because each dot sits at a level the indicator treats as a stop, many traders use it as a trailing stop: a stop-loss that moves only in the direction of the trade.

The SAR is a lagging indicator. It reacts to price that has already printed and does not predict the next move. See leading vs lagging indicators for the difference.

A drawn example

The sketch below is drawn by hand. It does not show real prices.

Here is what happens from left to right:

1. Price rises. The dots trail below and climb each bar.
2. Each new high speeds the dots up, so they close the gap to price.
3. Price stalls, and the rising dots catch up with it.
4. Price trades through the dots. The SAR flips above price and starts trailing the decline.

The formula

For each new bar, the SAR is calculated like this:

SAR(next) = SAR(current) + AF × (EP − SAR(current))

• EP (extreme point): the highest high of the current uptrend, or the lowest low of the current downtrend.
• AF (acceleration factor): starts at the step value. It rises by one step each time a new extreme point is made, up to the maximum value.
• On a flip: the new SAR is set to the previous extreme point. The AF resets to the step value, and the EP becomes the latest high or low on the new side.
• Rule against crossing price: in an uptrend, the SAR may not be placed above the lows of the recent bars. In a downtrend, it may not be placed below their highs. If the formula gives such a level, it is moved back to that boundary.

Because AF grows only when price makes new extremes, the dots speed up in a strong trend. In a pause, they keep their pace.

Parabolic SAR settings

The indicator has two inputs:

MetaTrader fills both fields with Wilder's original values. You can see them in the indicator's properties. Experienced traders adjust the settings to the instrument and timeframe. A volatile market such as gold or an index often needs a smaller step to avoid constant flips. A slow, steady market can tolerate a larger one. Test any change on a demo account or with the strategy tester before relying on it. There is no setting that works in all conditions.

How to add it in MT4 and MT5

Parabolic SAR is built into both platforms:

1. Open a chart.
2. Go to Insert → Indicators → Trend → Parabolic SAR. You can also find it in the Navigator under Indicators → Trend.
3. Set Step and Maximum on the Parameters tab, and the dot colour on the Colors tab.
4. Click OK. To change it later, right-click the dots and choose the properties option.

For platform details, see MetaTrader 4 and MetaTrader 5.

How to use Parabolic SAR

These are typical ways traders use it. They are not rules or signals.

• Trailing stop: in an open position, the stop is moved to the latest dot after each bar closes. The stop then tightens as the trend matures.
• Trend filter: some traders only consider setups in the direction the dots indicate. Others combine it with a longer moving average.
• Combined with a trend-strength gauge: since SAR is always either above or below price, it cannot say "no trend". Traders often pair it with ADX to judge whether a trend exists at all.
• Multiple timeframes: reading the SAR direction on a higher timeframe gives context for a lower one. See multiple timeframe analysis.

A Parabolic SAR strategy built only on flips is a stop-and-reverse system. It is always in the market and always on one side. That is a design choice with clear weaknesses, described below.

Where Parabolic SAR misleads

• Sideways markets: in a range, price keeps crossing the dots. Each crossing produces a flip, which creates a chain of small losses known as whipsaws. This is the indicator's main weakness.
• Spikes and news: one sharp candle can trigger a flip that the market reverses straight away. Gaps over a weekend can jump past the dot level, so a stop placed there may fill worse.
• Late in long trends: once the AF hits its maximum, the dots sit very close to price. A normal pullback can stop the trade out before the trend has ended.
• Live bar changes: the current bar's dot can shift until the bar closes. Acting on an intrabar flip differs from acting on a closed bar. Compare this with repainting indicators.
• Stop placement versus risk: the dot can be far from entry early in a trend. Position size should come from your own risk limits, not from where the dot happens to be. See risk management and the calculators.

Leveraged forex and CFD trading can lose money fast, and a trailing indicator does not prevent that.

Parabolic SAR compared with similar tools

Frequent questions

What are the default Parabolic SAR settings?

MetaTrader uses Wilder's original Step and Maximum values. You can see them in the indicator's Parameters tab.

Is Parabolic SAR a leading or lagging indicator?

It is lagging. It reacts to new highs and lows after they form.

How do I use Parabolic SAR as a trailing stop?

After each bar closes, move the stop to the new dot in the direction of the trade, and never move it backwards. Expect early exits in choppy markets.

Why does the SAR flip so often?

The market is likely ranging, or the step is large for that instrument and timeframe. A smaller step or a trend filter reduces flips but makes the indicator slower.

Does Parabolic SAR work on all instruments?

The calculation works on any chart. How useful it is depends on whether that market is trending. On volatile instruments it whipsaws more.

Where can I learn related concepts?

Start with technical analysis basics and market trends.