The Parabolic SAR (Stop And Reverse) plots a series of dots on the chart: below price during an uptrend, above price during a downtrend. When price crosses the dots, the SAR "flips" to the other side, signaling a potential trend reversal. It's designed to keep you on the right side of a trend and to trail a stop.

How it works

The dots accelerate toward price as a trend extends — the longer and stronger the move, the faster the SAR tightens beneath (or above) it. This built-in acceleration means the trailing distance shrinks as a trend matures, locking in more of the move. When price finally touches the dots, that's the stop-and-reverse point.

The trailing-stop use

The SAR's most practical use isn't as an entry signal but as a mechanical trailing stop: ride a trend with your stop at the SAR dot, letting it ratchet in automatically. It gives an objective, rules-based exit that tightens as the trend ages — no discretion required.

In a clean trend, the SAR is a disciplined trailing stop. In chop, it's a machine for buying high and selling low.

The chop problem

The SAR's fatal flaw is range-bound markets: with no trend, it flips constantly, generating a stream of false reversals that whipsaw you into losses. It only works when there's a real trend to follow — which is why it's best paired with a trend filter like ADX to switch it off in chop. A trend tool, useless (or worse) without a trend.