Parabolic SAR (Stop And Reverse)
Parabolic SAR scatters a trailing stop-dot field around price: dots below = a bull guard, dots above = a bear guard — the flip is the signal.
What it is
The Parabolic SAR (Stop And Reverse), introduced by J. Welles Wilder in 1978 (same book as RSI/ATR/ADX), paints a trail of dots on the price chart: in an uptrend the dots sit below price (a trailing stop ratcheting up with new highs); in a downtrend above. The dots accelerate as the trend extends (a parabolic curve) until price touches one — the trend ends and the dots flip to the other side. SAR = Stop And Reverse: both a stop and a reversal signal.
Origin
SAR comes from the same 1978 book by Wilder. His design goal was a fully automatic exit: no human judgment about when to leave — price touches the dot, you are out, and the dot flips to offer the reverse trade. That mechanical black-and-white character made it one of the earliest systematic stop tools, and it remains the most common stop visualization on main charts.
Download Camovia Tray free — check quotes, manage positions, and hide in one click from your system tray.
Download FreeThe formula
The recursion (simplified):
MT5 defaults: Step = 0.02, Maximum = 0.2 — Wilder's originals. The AF mechanism is SAR's soul: early in a trend the dots trail loosely (giving room), the longer the trend the tighter they hug (protecting profit), until touched — automatic tracking, loose first and tight later.
Worked example
A full SAR life cycle:
- Price breaks a downtrend structure and the dots start below the bars (AF = 0.02, dots far from price).
- Each new high adds 0.02 to AF and the dots accelerate upward — by mid-trend they hug price closely.
- A pullback touches the SAR dot — the uptrend terminates, dots flip above the bars and start tracking the short side.
The dot trail is a self-accelerating trailing stop: tolerant early, sensitive late. Its flip signal gets whipsawed constantly in ranges; in confirmed trends it is a beautifully clean segmentation tool.
How to read it
Reading dot position relative to price:
| Range | Common interpretation |
|---|---|
| Dots below, rising | Uptrend in progress — the dots are a moving stop; touched means out |
| Dots above, falling | Downtrend in progress — the bear guard |
| Flip (below → above) | Mechanical end of the uptrend — close longs / reverse (original usage) |
| Flip (above → below) | Downtrend terminated — close shorts / reverse long |
| Dots suddenly widening from price | A fresh trend starting (AF reset) — a volatility-expansion cue |
SAR's essence is "brainless but strict": no gray zone — touch the dot, exit. That is exactly why it fakes constantly in ranges; its true habitat is profit protection inside already-confirmed trends.
Common signals & usage
The SAR flip
Dots jumping sides — Wilder's original reverse mechanism; standalone it bleeds in ranges, so always add a trend filter.
Trailing stop inside a trend
Once the trend is confirmed (e.g. aligned with MA200), use the dots as the trailing stop — touch means out, no prediction, no hesitation.
Post-entry guard rail
Attach SAR immediately after a breakout entry — its loose-then-tight character naturally grants room for the launch and locks profit late.
Watching AF accelerate
Dots accelerating (AF near the 0.2 cap) = a mature trend — profit is rich but the turn is closer; stop adding.
Limitations & common mistakes
- The range whipsaw: in a box every touch flips the dots and every flip gets reversed — SAR's false-signal rate in trendless markets is extreme; filter the regime first.
- Parameter sensitivity: raising Step to 0.04 hugs tighter (more flips), lowering it loosens — the defaults fit most instruments, but high-volatility names may want 0.015–0.018.
- Gaps punch through the dot: when price gaps over the SAR, the actual exit is far worse than the dot — earnings/overnight-gap instruments need gap allowance in their stops.
- The reverse is not free: Wilder's Stop-And-Reverse includes opening the opposite trade — real reverse costs (spread + slippage) are high; most traders use only the stop side.
- No entry logic: SAR governs exits and direction only — "dots below" does not mean "buy now" (the trend may be mature); entries come from other tools.
PSAR in MT5
SAR is a built-in MT5 trend indicator (dots on the main chart). The MQL5 function for programmatic use is iSAR:
| MQL5 function | iSAR() |
| Default parameters | step=0.02, maximum=0.2 (Wilder's originals) |
| Buffers | 0=SAR values (main-chart price coordinates) |
| Display window | Main chart (dot overlay around the bars) |
| Dot meaning | Below price = bull guard; above = bear guard |
Both iSAR parameters are doubles — step sets the initial acceleration (early looseness), maximum caps it (0.2 = at most 10× speed). The buffer returns prices directly; bull/bear detection is just Close versus SAR.
Behavior across timeframes
15-minute
Usable for intraday trailing stops but flips often — run the guard only with the trend
1-hour / 4-hour
The main swing trailing-stop period; flips paired with ADX > 25
Daily
The classic habitat: daily SAR rails are the standard mechanical profit-taking for long-term holds
Weekly
Weekly SAR flips are rare — when they print, a long-term trend switch is heavyweight
Indicator combinations
SAR is almost always the exit tool. Common pairings:
- With MA: MA200 sets direction; SAR rides the guard on the trend side only — clean division of direction and exit. MA
- With ADX: trust SAR flips only when ADX > 25; below 20, flips are pure noise. ADX
- With MACD: a MACD cross enters, SAR dots guard the exit — momentum for entry, a mechanical point for exit. MACD
FAQ
Q What does "Stop And Reverse" in the name mean?
It is both: a Stop — the dot is a trailing stop, price touches it and you are out; a Reverse — Wilder's original design auto-opens the opposite trade on touch. Most modern traders use only the stop function; the reverse is rare due to costs.
Q How do I tune the 0.02 and 0.2 parameters?
0.02 is the acceleration start (early looseness of the dots), 0.2 the cap (up to 10× speed). A larger Step hugs earlier and flips more (short-term flavor); a smaller one is looser (swing flavor). For high-volatility instruments try Step 0.015–0.018 to cut false flips.
Q Must I reverse my position on a SAR flip?
No. The flip's value is the mechanical confirmation that the trend ended — closing the trend-side position is reasonable, but opening the reverse trade needs its own trend confirmation (ADX, MA direction). In ranges, reversing gets shredded repeatedly.
Q Why did my SAR stop fill far from the dot?
A gap: when price gaps across the SAR, the stop executes as a market order on the other side of the gap — the slippage equals the gap width. For earnings or overnight-gap instruments, anticipate event risk and manage positions before it.
Q How do I add Parabolic SAR in MT5?
Menu: Insert → Indicators → Trend → Parabolic SAR, or drag it from the Navigator onto the main chart. The dialog exposes just step and maximum (defaults 0.02/0.2); the dots overlay the bars directly.
Turn MT5 / MT4 into a Tray Tool
Check quotes, manage positions, and hide in one click.
Download Camovia TrayThis page is educational content about a technical indicator. It is not investment advice. Indicator signals can and do fail — always combine them with your own risk management.