Parabolic SAR

Developed by Wilder in 1978, Parabolic SAR (Stop and Reverse) places dots above or below price to indicate trend direction and potential stop levels. When dots are below price, the trend is up; when above, the trend is down. The SAR value accelerates toward price as the trend continues, using an Acceleration Factor (AF) that starts at 0.02 and increases by 0.02 each time a new extreme price is set, up to a maximum of 0.20. When price crosses the SAR, the indicator 'reverses' — the dots flip to the other side and the AF resets. The accelerating nature means the stop tightens as the trend matures.

• Trailing stop management: use the SAR dot as a dynamic trailing stop — move your stop to the SAR level as it advances with the trend.
• Trend direction filter: only take long signals from other indicators when SAR dots are below price; only take shorts when dots are above.
• Entry timing: a SAR flip from above to below price (dots moving from above to below) is a potential long entry signal.
• Exit timing: a SAR flip from below to above price is a potential exit signal for long positions.
• Combining with ADX: only act on SAR flips when ADX is above 25, confirming a trend is in place.

• Parabolic SAR performs very poorly in sideways, choppy markets — it generates rapid flip signals that result in repeated small losses.
• The default AF of 0.02/0.20 was calibrated for commodity markets. In crypto's high-volatility environment, a lower AF (0.01/0.10) reduces whipsaws.
• SAR always has a position — it is either long or short. This forces a binary view of the market that ignores ranging conditions.
• The SAR level can jump significantly when the indicator reverses, making it impractical as a hard stop in fast-moving markets.
• Parabolic SAR is calculated on the close price. In crypto, where gaps are rare but wicks are extreme, the SAR can be triggered by a wick that immediately reverses.