Parabolic SAR

What it is

Wilder's Parabolic SAR (stop and reverse), from 1978, places a dot under price in an uptrend and above it in a downtrend. Each bar the dot moves towards price by an acceleration factor that starts at 0.02 and rises by 0.02 each time the trend makes a new extreme, up to 0.20. When price touches the dot, it flips to the other side.

How to spot it

• Dots below the candles: uptrend; above: downtrend.
• Dots catching up with price quickly in a stretched trend.

How to use it

• Use it as a trailing stop that tightens as a trend matures.
• Combine with a trend filter such as ADX; on its own it whipsaws in ranges.

Common mistakes

• Using every flip as a new trade in a choppy market.
• Using it for entries rather than exits.

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