Indicators

Parabolic SAR: How to Use the Indicator to Follow Trends

Astron Team · 09/24/2026 · 4 min read

Among the most visual trend indicators in technical analysis is the Parabolic SAR, created by engineer J. Welles Wilder — the same author of the RSI and the ATR. On the chart, it shows up as a series of dots above or below the candles, and that position alone already delivers much of the information: dots below the price indicate an uptrend, dots above indicate a downtrend.

The acronym SAR stands for "Stop and Reverse", which already conveys the indicator's original purpose: signaling the moment to close a position and consider opening the opposite trade.

How the indicator is calculated

The Parabolic SAR calculation uses three elements: the previous period's SAR value, the Extreme Point (EP, the most recent high or low during the trend), and the Acceleration Factor (AF), which starts at 0.02 and increases by 0.02 each time a new Extreme Point is reached, up to a standard ceiling of 0.20.

The formula is: new SAR = previous SAR + AF × (EP − previous SAR). This means that, at the start of a trend, the SAR moves slowly, and as the Acceleration Factor grows, the dots start getting closer to the price more quickly — hence the "parabolic" shape that gives the indicator its name.

A numerical example

Suppose a stock in an uptrend, with the previous day's SAR at R$ 41.00, the Extreme Point (the trend's highest high so far) at R$ 45.00, and the Acceleration Factor at 0.04 after two new highs. The new SAR sits at:

R$ 41.00 + 0.04 × (R$ 45.00 − R$ 41.00) = R$ 41.00 + 0.04 × R$ 4.00 = R$ 41.00 + R$ 0.16 = R$ 41.16.

The next day, if the stock makes a new high of R$ 46.00, the Extreme Point rises to that value and the Acceleration Factor advances to 0.06. The next SAR would be R$ 41.16 + 0.06 × (R$ 46.00 − R$ 41.16) = R$ 41.16 + 0.06 × R$ 4.84 = R$ 41.16 + R$ 0.29 = R$ 41.45. Notice how the dot rises faster with each new advance, "chasing" the price.

When the indicator signals a reversal

While the price stays above the line of dots, the SAR keeps rising along with the trend. The moment the price closes below the SAR's value, the indicator flips: the dots start appearing above the candles, the Acceleration Factor resets to 0.02, and the Extreme Point starts being recalculated based on the most recent low, now for a downtrend.

It's this flip — the "stop and reverse" in the name — that many traders use both as an exit signal for a long position and as a possible short entry signal, depending on the adopted strategy.

Strengths and limitations

The Parabolic SAR works well in markets with a defined, long-lasting trend, where the dots track the move without generating many false signals. The problem shows up in markets with no clear direction: since the indicator is always "on", switching position with every swing, it can generate several reversal signals in a row that don't hold up, a behavior known as whipsaw.

Because of that, most traders use the SAR alongside a trend indicator, like a longer-term moving average, applying the SAR's signals only when they're aligned with the market's bigger direction. Astron's platform lets you plot the Parabolic SAR alongside other indicators on the same chart, which makes this kind of comparison easier before any decision.

Adjusting the Acceleration Factor

Most platforms let you change the default values of 0.02 (step) and 0.20 (ceiling) for the Acceleration Factor. Reducing the step to 0.01 makes the indicator slower to react, generating fewer reversal signals, but also delaying the exit in case of a real trend change. Increasing the step to 0.03 or more does the opposite: the SAR reacts faster to price, running closer to the candles, at the cost of more false signals in choppy markets.

There's no universally better setting — the choice depends on the asset and the chart timeframe used. A historically more volatile asset tends to benefit from a smaller step, which filters out some noise; an asset with smoother, steadier trends may work well with the default values. Testing different settings on historical data, before applying any adjustment to a real trade, helps you understand how the indicator behaves on the specific asset being analyzed.

Like any technical indicator, the Parabolic SAR works with past price data and doesn't guarantee the market's future behavior. Always define the position size and the stop loss before entering a trade, and treat the indicator's signals as a starting point for analysis, not as an automatic buy or sell order.