Parabolic SAR stop-and-reverse
TrendBeginner
Parabolic SAR, from Welles Wilder, plots a trailing stop that flips when price crosses it. Dots sit under price in an advance and above price in a decline. Traders use the flip as a trend direction change, not as a forecast of how far the move will run.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- Wilder's usual start is an acceleration factor of 0.02, increasing by 0.02 toward a cap of 0.20 as new extremes print. A long is in force while dots are below price. Exit or reverse when a bar crosses the dot. Wilder and later write-ups pair it with a trend-strength check such as ADX so the stop is not the only input.
- Where AI fits
- AI can code the recursive SAR update, which is easy to get wrong by hand, and can disable flips when a separate range filter says there is no trend. Walk-forward tests should cover the acceleration cap. Letting a model retune the step size on the same chart it is judged on will paint a smoother history than the rule deserves.
- Markets
- Liquid futures, FX, and stocks that spend time in directional swings.
- Timeframes
- Hourly to daily. Faster charts flip the stop too often for most cost assumptions.
- Risks
- In a range the dots flip on every push and the stop becomes a whipsaw machine. SAR does not measure trend strength, so a quiet drift and a strong trend can look alike. Tight acceleration settings hug price and get tagged by ordinary noise.