Parabolic SAR
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Parabolic SAR: The "Stop and Reverse" System
Updated: 2026-03-01 · Expert Analysis by Senior Trading Analyst · SEO Optimized for Beginners
Executive Summary
The Parabolic SAR (Stop and Reverse) is a trend-following indicator used to determine the direction of an asset's momentum and to provide entry and exit points. It is unique because it "trails" the price and accelerates over time as the trend matures.
1. The Dots: Above and Below
The Parabolic SAR appears as a series of dots on your chart:
- Dots Below Price: The trend is bullish. You should be looking for buy opportunities or holding long positions.
- Dots Above Price: The trend is bearish. You should be looking for sell opportunities or holding short positions.
2. The Acceleration Factor
One of the most brilliant features of the PSAR is that it "speeds up." As a trend continues, the dots move closer to the price. This is designed to lock in profits as the trend reaches its likely exhaustion point. This makes it one of the best tools for trailing stop-losses.
3. The Fatal Flaw: Sideways Markets
The PSAR is a "trend-following" indicator. In a sideways or "choppy" market, it will flip-flop constantly, leading to many small losses. The Rule: Only use Parabolic SAR when the market is clearly trending (confirmed by a tool like the ADX or a Moving Average).
4. Conclusion
Parabolic SAR is a mechanical system that takes the emotion out of trading. It tells you exactly where to get in and, more importantly, exactly where to get out. Use it to protect your gains in strong trends, but turn it off when the market starts to go nowhere.
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