Parabolic SAR
Also known as: parabolic stop and reverse
Parabolic SAR is a technical indicator that plots a series of dots above or below a 's price to highlight the direction of the current trend and flag potential points where that trend could reverse. SAR stands for stop and reverse, reflecting its original purpose as a tool for setting levels that automatically flip position when the price crosses them.
When a is trending upward, the dots appear below the price and gradually rise toward it as the trend continues, tightening the implied stop level over time. When the trend is downward, the dots appear above the price and gradually fall toward it. The dots accelerate their pace as a trend persists, moving closer to price the longer the move runs, which is meant to lock in gains faster during a strong, sustained trend. When the price crosses through the dots, the indicator flips to the other side, signaling that the trend may be reversing.
Parabolic SAR is most useful in markets that are trending clearly, where it can help traders trail a stop loss without exiting too early. It tends to perform poorly in choppy or , generating frequent flips that whipsaw a trader in and out of positions with little real trend to capture. Because of this, it is commonly paired with a trend-strength tool, such as the , so that its signals are only acted on when the broader market is actually in a defined trend rather than .