Parabolic SAR

The Parabolic SAR (“stop and reverse”), introduced by J. Welles Wilder in 1978, plots a trailing stop as a series of dots below price in an uptrend and above price in a downtrend. Each bar the stop moves toward price by an acceleration factor (AF) times the distance to the trend's extreme point (EP) — the highest high of the current uptrend or the lowest low of the current downtrend.

The AF starts small (typically 0.02) and grows by a step each time the trend makes a new extreme, up to a cap (typically 0.2). That acceleration is the defining feature: the longer and stronger a trend runs, the faster the stop closes in, tracing the parabola the indicator is named after. The stop is also clamped so it never moves inside the range of the last two bars.

When price touches the stop, the indicator reverses on that same bar: the SAR jumps to the old trend's extreme point, the AF resets, and a new trend begins in the opposite direction. Because it is always in the market and flips on every touch, the SAR excels in sustained trends and whipsaws badly in ranges — traders usually pair it with a trend or regime filter.