Parabolic SAR
Parabolic SAR (stop and reverse) plots a trailing point below price in an uptrend and above it in a downtrend, and flips sides when price touches it.
How Parabolic SAR is calculated
Start from the extreme point of the current trend (the highest high in an uptrend). Each bar the SAR moves toward price by the acceleration factor times the gap to the extreme point. The factor starts at 0.02 and rises by 0.02 each time a new extreme is made, up to 0.2. When price crosses the SAR, the trend flips and the factor resets.
How it is read
The dots act as a trailing stop that tightens as a trend ages. A flip is read as a trend change.
Common mistakes
- Using it in a range. It flips repeatedly and each flip is a trade.
- Forgetting it always has a position: it is a stop-and-reverse system, never flat.
- Using the default factors on every market without checking how often they flip.
What Tickfloor tested
Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
Related concepts
- Average Directional Index (ADX)
- Stop loss
- Average True Range (ATR)
- Moving average crossover
- All concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.