Parabolic SAR
A trend-following indicator that plots dynamic stop-and-reverse levels above or below price, providing both trailing stop guidance and potential trend reversal signals.
Definition
Parabolic SAR (Stop and Reverse) is a price-and-time-based technical indicator developed by J. Welles Wilder Jr. and introduced in his 1978 book alongside other classics like the Average True Range (ATR) and the ADX. It appears on price charts as a series of dots: when dots are plotted below the price bars, the trend is considered bullish and the dots function as trailing stop-loss levels; when dots appear above the price bars, the trend is bearish and the dots mark overhead resistance or stop levels for short positions. The "SAR" in its name captures both its functions — it tells traders where to place their stop, and it flips or "reverses" its position when price breaches the current dot.
Why it matters
One of the most practical problems for Indian F&O and equity traders is knowing when to exit a winning trade. Static profit targets often leave money on the table during strong trending moves, while arbitrary stop-losses get hit by normal volatility. Parabolic SAR solves this by providing a dynamic trailing stop that tightens automatically as the trend matures and prices extend. This is especially useful for positional traders riding trending moves in Nifty 50, Bank Nifty, or individual large-cap stocks over multi-day periods. In derivatives markets, option writers can use the SAR flip as a signal to close short positions before an adverse move accelerates. The indicator's built-in acceleration factor also ensures that it becomes more sensitive the longer a trend continues — matching the natural behaviour of parabolic price moves during momentum phases.
Formula
SAR(tomorrow) = SAR(today) + AF × (EP − SAR(today))
Where:
AF (Acceleration Factor) starts at 0.02 and increases by 0.02 each period that the Extreme Point (EP) sets a new high (in an uptrend) or new low (in a downtrend), up to a maximum of 0.20.
EP (Extreme Point) = the highest high reached during the current uptrend, or the lowest low during a downtrend.
When price crosses the SAR in the opposite direction, the indicator reverses: the current EP becomes the new starting SAR, and the AF resets to 0.02. The parabolic name reflects how the SAR accelerates toward price as the trend extends, tracing a parabola-like curve.
Example
Suppose HDFC Bank on the NSE is in an uptrend, trading near a hypothetical ₹1,720. The Parabolic SAR is currently plotting at ₹1,680 (below price), acting as the trailing stop. Over three sessions, the stock rises to ₹1,760 — each new high raises the EP and causes the AF to step up, pulling the SAR closer to price. By day four, the SAR has risen to ₹1,705. A swing trader holding the stock uses this level as their stop-loss. If price pulls back and closes below ₹1,705, the SAR flips above price — the "reverse" signal — prompting the trader to exit the long position. This is a hypothetical example; actual stock behaviour and SAR values will differ.
Find trending setups with live data
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