Technical & Chart AnalysisSARParabolic Stop and Reverse
Parabolic SAR
A trailing stop-and-reverse system that plots dots which accelerate toward price as a trend extends.
What Parabolic SAR means
Parabolic SAR, where SAR stands for stop and reverse, is a Wilder system that plots a series of dots below price during an uptrend and above it during a downtrend. Each new dot moves toward price by an acceleration factor multiplied by the distance between the current dot and the extreme point of the move so far. The factor starts at 0.02, increases by 0.02 each time a new extreme is recorded, and is capped at 0.2. When price touches the dot the position is closed and reversed, and the calculation restarts in the opposite direction.
The design makes it a trailing exit tool rather than an entry signal: as a trend extends and new extremes accumulate, the acceleration factor rises and the dots close in on price, tightening the stop and locking in gains. Its weakness is severe and well known. Because the system is always in the market and reverses on every touch, it whipsaws badly in ranging conditions, producing a long run of small losses. Most users pair it with a trend filter such as ADX and treat it purely as an exit.
Worked example
In a EUR/USD uptrend with the current SAR at 1.0800, an extreme point of 1.0900 and an acceleration factor of 0.02, the next dot sits at 1.0802; after several new highs push the factor to 0.10 the dots begin closing in far faster.
Related terms
- Trailing StopA stop loss that automatically follows price at a set distance, moving only in the profitable direction.
- Trend FollowingA strategy family that enters in the direction of an established move and holds while it persists, rather than predicting turns.
- WhipsawRapid back-and-forth price movement that repeatedly triggers entries and stops in both directions.
- ADX (Average Directional Index)A Wilder indicator measuring trend strength on a 0 to 100 scale, without indicating trend direction.
- Stop LossA resting order that closes an open position once price reaches a set level, capping the loss on that trade.
Frequently asked questions
What does Parabolic SAR mean in forex trading?
A trailing stop-and-reverse system that plots dots which accelerate toward price as a trend extends.
How does Parabolic SAR work in practice?
The design makes it a trailing exit tool rather than an entry signal: as a trend extends and new extremes accumulate, the acceleration factor rises and the dots close in on price, tightening the stop and locking in gains. Its weakness is severe and well known. Because the system is always in the market and reverses on every touch, it whipsaws badly in ranging conditions, producing a long run of small losses. Most users pair it with a trend filter such as ADX and treat it purely as an exit.
What is an example of Parabolic SAR?
In a EUR/USD uptrend with the current SAR at 1.0800, an extreme point of 1.0900 and an acceleration factor of 0.02, the next dot sits at 1.0802; after several new highs push the factor to 0.10 the dots begin closing in far faster.
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