Parabolic SAR (PSAR): How to Read It
Parabolic SAR places dots above or below price that trail the trend and speed up as it continues. When price crosses the dots, they flip sides, signaling a possible trend reversal.
The formula
Common settings: Step 0.02, maximum 0.20
How to read it
- Dots below price suggest an uptrend.
- Dots above price suggest a downtrend.
- Dots accelerate toward price as the trend continues.
- A flip of the dots suggests a potential reversal.
- Works best in strong trending markets.
Typical signals
- Dots flipping below price as a bullish signal.
- Dots flipping above price as a bearish signal.
- Using the dots as a trailing stop level.
Pitfalls to avoid
- Whipsaws heavily in sideways markets.
- Always in the market, never neutral.
- Can exit too early in volatile trends.
FAQ
What does SAR stand for?
Stop and Reverse, because the dots act as a stop that flips direction.
What is the acceleration factor?
It controls how quickly the dots move toward price as the trend extends.
Should I use PSAR alone?
It is best combined with a trend-strength filter like ADX to avoid choppy markets.
Works well with
Average Directional Index
The Average Directional Index measures how strong a trend is, regardless of its direction. Paired with the +DI and -DI lines, it also helps identify which side is in control.
๐Exponential Moving Average
The Exponential Moving Average is a moving average that gives more weight to recent prices. It responds faster than the SMA, which helps traders spot trend changes sooner.
๐Average True Range
Average True Range measures how much an asset typically moves in a period, including gaps. It does not show direction, but it is extremely useful for sizing positions and placing stops.