The Parabolic SAR — SAR stands for "stop and reverse" — is a trail of dots that sits above or below the candles. J. Welles Wilder built it as a way to follow a trend and trail a stop at the same time, and that is still its two jobs: tell you the direction, and give you a level to get out. When the dots are below price the trend is up; when they flip above, it has turned down.
How it works
Only one thing really matters on the chart: which side of price the dots are on.
- Dots below the candles — uptrend. Hold longs.
- Dots above the candles — downtrend. Hold shorts.
- Price touches the dots — the SAR stops and reverses. The dots jump to the other side and the bias flips.
There is no middle state. The SAR is always in the market, always on one side or the other, which is exactly why it suits trend-following and struggles with everything else.
The acceleration factor
The dots are not evenly spaced. Each time the trend makes a new extreme — a higher high in an uptrend, a lower low in a downtrend — the SAR speeds up and the dots close in on price. This comes from an acceleration factor, 0.02 by default, rising by 0.02 at each new extreme and capped at 0.20. The effect is a stop that starts loose and tightens the longer a move runs, so a mature trend is held on a shorter leash than a fresh one.
Because the SAR tightens as a trend ages, it tends to give back less at the end of a long move than a fixed stop would — and to get tapped out early when price only pauses. That trade-off is the whole tool.
As a trailing stop
The dot level is a trailing stop you do not have to calculate. Many EAs read it straight off: hold the position while the SAR trails behind, move the stop to each new dot, and exit when price finally hits it. Because the dots only ever move in the trade's favour, the stop never loosens — it ratchets one way and waits.
A worked example
An EA on a £3,000 account goes long EUR/USD with the SAR dots just below entry. Price climbs for a week; the dots follow, tightening as each new high prints. The trade is up around £120 when momentum stalls, price ticks down into the nearest dot, and the SAR flips — the EA closes with roughly £95 banked after costs. It did not sell the top. It rode the middle and handed back the end, which is what a trailing stop is meant to do.
Where it fails
In a range the SAR is punished. Price drifts sideways, clips the dots, reverses, clips them again, and every flip is a small loss with costs on top. Wilder knew this and paired it with the ADX: check that a trend actually exists before trusting the dots. On a quiet, ranging pair the SAR will flip you in and out all session for nothing.
The Karnek note
Karnek does not place the SAR on a chart or move your stops — your terminal and your EA do that. It shows you, read-only, whether the account using it is trending up or bleeding out through whipsaws, across weeks rather than a single lucky run. It only reads the terminal and can never trade.
Written and reviewed by the Karnek Research team. Last updated August 2026.
Educational content only - not financial advice. Past performance does not predict future results. Trading carries significant risk.