Parabolic SAR (Stop and Reverse) was developed by J. Welles Wilder. It places dots on the chart โ below price in an uptrend and above price in a downtrend. When price crosses the SAR dots, a trend reversal is signaled. It is simple to read and provides clear visual signals.
Parabolic SAR Calculation
Uptrend: SAR = Previous SAR + AF ร (EP โ Previous SAR)
Downtrend: SAR = Previous SAR โ AF ร (Previous SAR โ EP)
AF = Acceleration Factor (starts at 0.02, increases by 0.02 each bar, max 0.2)
EP = Extreme Point (highest high in uptrend / lowest low in downtrend)
Reading Parabolic SAR
- Dots below price โ Uptrend โ hold long positions, dot is your stop loss
- Dots above price โ Downtrend โ hold short or stay out
- Price crosses dots โ Potential trend reversal โ consider exiting
The Parabolic SAR accelerates as a trend extends. This is intentional โ it locks in more profits as the trend matures and becomes more likely to reverse.
Parabolic SAR as Trailing Stop
The most practical use of Parabolic SAR on NSE is as a trailing stop loss:
Trailing Stop Strategy:
Enter long on any signal (EMA crossover, breakout, etc.)
Set stop loss at the current SAR dot
Update stop loss each day to the new SAR dot position
Exit when price closes below the SAR dot
Advantage: Automatically tightens as trend matures
Enter long on any signal (EMA crossover, breakout, etc.)
Set stop loss at the current SAR dot
Update stop loss each day to the new SAR dot position
Exit when price closes below the SAR dot
Advantage: Automatically tightens as trend matures
SAR Settings
| Step (AF) | Max AF | Effect | Best For |
|---|---|---|---|
| 0.02 (default) | 0.20 | Balanced | Daily swing trading |
| 0.01 | 0.10 | Slower, wider stops | Positional, fewer whipsaws |
| 0.03 | 0.30 | Faster, tighter stops | Intraday, trending markets |
Parabolic SAR Limitations
Parabolic SAR performs very poorly in sideways or ranging markets. It will trigger multiple false reversals (whipsaws) during consolidation phases. Always combine with ADX to confirm the market is trending before using SAR.
- Not reliable when ADX is below 20 (ranging market)
- Can give exits too early in slow, grinding uptrends
- Works best on strongly trending NSE stocks and NIFTY index
Combine SAR with ADX: Only use SAR signals when ADX is above 25. When ADX is below 25, ignore SAR reversals โ the market is ranging and SAR will whipsaw repeatedly.
