Parabolic SAR Explained
A series of dots below the price in an uptrend and above it in a downtrend. SAR stands for “stop and reverse”. J. Welles Wilder introduced it in his 1978 book New Concepts in Technical Trading Systems.
How it's calculated
Each day the dot moves towards the price by an acceleration factor (starting at 0.02 and rising by 0.02 each time the trend makes a new extreme, up to 0.20). When the price crosses the dots, they flip to the other side.
How traders use it
Mostly as a trailing stop: stay in while the dots are on the right side, exit (or reverse) when they flip.
What people say
It works well in clean trends and badly in sideways markets, where it flips constantly. Most traders use it to manage exits rather than to choose entries.
Practise with this indicator
Open a real hidden-stock chart with only this indicator turned on and see if it helps you beat the market.
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