Developed by Welles Wilder, the Parabolic SAR refers to a price-and-time-based trading system. SAR trails price as the trend extends over time. The indicator is below prices when prices are rising and above prices when prices are falling. In this regard, the indicator stops and reverses when the price trend reverses and breaks above or below the indicator. This book also includes RSIAverage True Range Optionsand the Directional Movement Concept ADX. Despite being developed before the computer age, Wilder's indicators have stood the test of time and remain extremely popular. These examples will provide a general idea of how SAR is calculated. Because the options for rising and falling SAR are different, it is easier stock divide the calculation into two parts. The first calculation covers rising SAR and the second covers falling SAR. Rising SAR Prior SAR: The SAR value for the previous options. The highest high of the current uptrend. AF can reach a maximum of. This is then added to the prior period's SAR. Note however that SAR can never be above stock prior two periods' lows. Should SAR be above one of those lows, use the lowest of the two for SAR. Falling SAR Prior SAR: The lowest low of the current downtrend. This is then subtracted from the prior period's SAR. Note however that SAR can never be below the prior two periods' highs. Should SAR be below one of those highs, use the highest of the two for SAR. SAR follows price and can be considered a trend following indicator. Once a downtrend reverses and starts up, SAR follows prices like a trailing stop. The stop continuously rises as long as the uptrend remains in place. In other words, SAR never decreases in an uptrend and continuously protects profits as prices advance. The indicator acts as a guard against the propensity to lower a stop-loss. Once price stops rising and reverses below SAR, a downtrend starts and SAR is above the price. SAR follows prices sar like a trailing stop. The stop continuously falls as long as the downtrend extends. Because SAR never rises in a downtrend, it continuously protects profits on short positions. The Acceleration Factor AFwhich is also referred to as the Step, dictates SAR sensitivity. SharpCharts users can set the Step and stock Maximum Step. As shown in the spreadsheet example, the Sar is a multiplier that influences the rate-of-change in SAR. That is why it is referred to as the Acceleration Factor. Step gradually increases as the trend extends until it hits a maximum. SAR sensitivity can be decreased by decreasing the Step. A lower step moves SAR further from price, which makes a reversal less likely. SAR sensitivity can be increased by increasing the step. A higher step moves SAR closer to the price action, which makes a reversal more likely. The indicator will reverse too often if the step options set too high. This will produce whipsaws and fail to capture the trend. Chart 6 shows IBM with SAR. Chart 7 shows IBM with a higher Step. SAR is more sensitive in chart 7 because there are more reversals. This is because the Step is higher in chart 7. The sensitivity of the indicator can also be adjusted using the Maximum Step. While the Maximum Step can influence sensitivity, the Step carries more weight because it sets the incremental rate-of-increase as the trend develops. Also note that increasing the Step insures that the Maximum Step will be hit quicker when a trend develops. Chart 8 shows Best Buy BBY with a Sar Step. This lower Maximum Step decreases the sensitivity of the indicator and produces fewer reversals. Notice how this setting caught a two month downtrend and a subsequent two month uptrend. Chart 9 shows BBY with a higher Maximum Step. This higher reading produced extra reversals sar early February and early April. Sar all, SAR is designed to catch the trend and follow it like a trailing stop. As with most indicators, the signal quality depends on the settings and the characteristics of the underlying security. The right settings combined with decent trends can produce a great trading system. The wrong settings will result in whipsaws, losses and frustration. There is no golden rule or one-size-fits-all setting. Each security should be evaluated based on its own characteristics. Parabolic SAR should also be used in conjunction with other indicators and technical analysis techniques. For example, Wilder's Average Stock Index can be used to estimate the strength of the trend before considering signals. The Parabolic SAR can be options as an Overlay stock SharpCharts. The default parameters are. As shown above, these can be changed to suit the characteristics of an individual security. This contrast makes it easier to compare the indicator with the price action of the underlying security. Click here for a live example of Parabolic SAR. The scan then filters for stocks that have a bullish SAR reversal Parabolic SAR. This scan is just meant as a starter for further refinement. The scan then filters for stocks that have a bearish SAR reversal Parabolic SAR. For more details on the syntax to use for Parabolic SAR scans, please see our Scanning Indicator Reference in the Support Center. The Parabolic Trading System by Thom Hartle Oct Parabolics by John Sweeney Jun Market data provided by: Commodity and historical index data provided by: Unless otherwise indicated, all data is delayed by 20 minutes. The information provided by StockCharts. Trading and investing in financial markets involves risk. You are responsible for your own investment decisions. Log In Sign Up Help. Free Charts ChartSchool Blogs Webinars Members. Table of Contents Parabolic SAR. The Parabolic Trading System by Thom Hartle Oct Parabolics by John Sweeney Jun Sign up for our FREE twice-monthly ChartWatchers Newsletter! 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