Parabolic SAR

Parabolic SAR

A technical indicator created by Welles Wilder, the Parabolic Stop and Reverse (SAR) is a simple enough buy/sell indicator that is a combination of price and time components to generate buy and sell signals. The Parabolic SAR is also effective as a tool to determine where to place stop loss orders.

In the chart below, the little blue circles form the Parabolic SAR.

  • Buy Signal: When the price closes above the upper Parabolic SAR, this is a buy signal.
  • Sell Signal: When the price closes below the lower Parabolic SAR, this is a sell signal.

The Parabolic Stop and Reverse (SAR) indicator combines price and time components to generate buy and sell signals. The Parabolic SAR is also effective as a tool to determine where to place stop loss orders.

Parabolic chart - Buy / Sell points

Using Parabolic SAR to place stop loss points

This tool is useful for traders who want to prevent losses and protect profits with a stop loss order. A stop loss order is placed below the purchase price or above a selling price to minimize losses or protect profits should the price movement not turn out as expected/projected.

Once a position is entered, the preceding dot on the Parabolic SAR serves as the stop loss order.

Let’s take a look at how it’s used in the charts below:

Parabolic chart
Parabolic chart