Parabolic SAR: a trailing stop-and-reverse

A trailing stop-and-reverse indicator drawn as dots above or below price.

Illustration on a made-up price series, not market data. Hypothetical, for education only.

What it measures

Each dot moves toward price a little faster the longer a trend lasts (the acceleration factor), until price touches it and the dot flips to the other side.

How to read it

Dots below price mean an uptrend, dots above a downtrend.
When price touches a dot the indicator reverses: that is the stop and reverse.
The dots follow price closely, so they work as a trailing stop.

A common mistake

Using it in a sideways market, where it flips constantly and every flip costs fees.

Check yourself

1. Parabolic SAR dots below price mean ... an uptrend. a downtrend. there is no trend.

2. What happens when price touches a dot? Nothing. The indicator reverses to the other side. The dot doubles in size.

3. Where does Parabolic SAR work worst? In strong trends. It works the same everywhere. In sideways markets.

Try it

Run the Parabolic SAR Trail template over a trending period and over a sideways one, and compare.

Open the app

← Previous lesson: Supertrend: a line that follows the trend Next lesson: ADX: how strong is the trend? →

Educational content. Not investment advice. Past or simulated results do not predict future results.