loading...
Trend-following indicator with automatic stop and reverse.
Parabolic SAR (Stop And Reverse) places dots above or below price to indicate trend direction and potential reversal points. Developed by J. Welles Wilder — the same creator of RSI and ATR — it provides both trend direction and automatic stop-loss levels.
Key insight: The dots accelerate toward price as the trend matures. Early in a trend, the dots trail far behind price, giving the trend room to develop. As the trend extends, the dots close in, tightening the stop. When price touches the dots, the indicator 'reverses' — dots flip to the other side.
SAR stands for 'Stop And Reverse' because the system assumes you're always in the market — when one trade stops out, you immediately reverse to the opposite direction. In practice, most traders use it selectively.
Dots below price: Bullish trend. Each dot represents a trailing stop level. Price above the dots = stay long.
Dots above price: Bearish trend. Each dot represents a trailing stop for shorts. Price below the dots = stay short or stay out.
Dot flip: When dots switch from above to below (or vice versa), it signals a potential trend change. The flip is most significant when it occurs after an extended trending period with confirming volume.
This indicator works best when combined with price action analysis. Never trade indicators alone - always confirm with the chart.
Indicators confirm what price action shows. They don't replace it. Never trade based on an indicator signal alone. Always combine with chart structure, pattern recognition, and volume analysis.
The Academy teaches when to use this indicator, when to ignore it, and how to combine it for high-probability setups.
Join Academy →