Parabolic SAR

Parabolic SAR, from Welles Wilder, places dots below price in an uptrend and above price in a downtrend. The dots are a stop that moves only in the direction of the trend, and that moves faster as the trend makes new extremes. When price touches a dot, the trend call flips and the dots jump to the other side.

The acceleration factor is the personality. A higher step and a higher cap hug price and flip more often. The default 0.02 / 0.20 is a swing setting. SAR does not care about a moving average. It cares about the extreme price since the flip and the accelerating step toward it.

Dots below price define the long regime. The dot is the stop. A close through the dot is the exit and, in a stop-and-reverse system, the short entry. Stop-and-reverse is brutal in a range, because SAR flips both ways.

Dots above price define the short regime. The same warning applies. SAR is built for trends that actually run. In a sideways market it will reverse you repeatedly.

Using SAR as a reversal oracle at the first flip after a long trend. The first flip is often a pause. Also forgetting that the dot is a stop level, so your risk is the distance to the dot, which can be wide right after a flip.

SAR assumes one trend. It has no band for noise. A single spike can flip it. Filters, such as only taking flips that agree with a higher-timeframe average, exist because the raw tool whipsaws.