Parabolic SAR
PSAR · module 06 of 33 · trend
A trailing stop-and-reverse level that accelerates toward price as a trend extends.
- SAR
- ▲/▼ where the rule triggers
Dots below price = up-trend, above = down-trend. A flip is often used as a trailing stop rather than an entry.
How to apply it
- 1. Add it. Start with 0.02 / 0.2 on 15m (Intraday).
- 2. Read the market first. Dots below price trail an uptrend and provide a mechanical exit level that tightens as the move extends.
- 3. Adjust for ranges. Flips sides every few candles, producing a continuous stream of meaningless reversals.
- 4. Manage the trade. Place the stop at 1.5 × ATR and the target at 3.5 × ATR, and only act when the chart above shows the trigger.
How it is calculated
SARnext = SAR + AF × (EP − SAR), where EP is the extreme point and AF steps up by 0.02 to a 0.2 maximum.
Inputs
- · Step (0.02)
- · Maximum acceleration (0.2)
Reading it correctly
In a trend
Dots below price trail an uptrend and provide a mechanical exit level that tightens as the move extends.
In a range
Flips sides every few candles, producing a continuous stream of meaningless reversals.
Settings by style
| Style | Suggested values |
|---|---|
| Intraday | 0.02 / 0.2 on 15m |
| Swing | 0.01 / 0.1 on 4h for a looser trail |
These are conventional starting points, not optimised values. Test any change on your own pair and timeframe before relying on it.
Worked example
Uptrend with SAR at 1.0840, extreme point 1.0900, AF 0.06: SARnext = 1.0840 + 0.06 × (1.0900 − 1.0840) = 1.0876. The stop has moved 36 pips higher in a single candle — the acceleration factor tightening the trail.
When it failed
In a 20-pip USD/CHF range, PSAR flipped from below to above price seven times in one session. Each flip signalled a reversal into the opposite side of the same range.
Limitations
- Assumes a trend exists; it is unusable as a signal generator in ranges.
- Acceleration can move the stop inside normal noise and exit a valid trend early.
- Always in the market — it has no neutral state.
Works well alongside
- · ADX / DMI
- · ATR
Redundant with
- · SuperTrend
- · Chandelier-style ATR trails
Stacking these produces agreement by construction, which is not confirmation.
Practice exercise
On 4h GBP/USD, use PSAR only as an exit for trades entered by an EMA(20) pullback rule, and compare the result with a fixed 1.5 ATR stop over 20 trades.
Check your understanding
1. PSAR is most useful as:
- · An entry signal in ranges
- ✓ A trailing exit in an established trend
- · A volatility measure
- · A volume filter
Its design purpose is a mechanical trailing stop; used for entries in ranges it flips constantly.
2. As a trend extends, the acceleration factor:
- · Decreases
- ✓ Increases, tightening the trail
- · Stays fixed
- · Resets each candle
AF steps up at each new extreme up to its maximum, moving the SAR closer to price over time.