📈 Indicators·intermediate

Parabolic SAR

Also called: psar, stop and reverse

A trend-following indicator that plots dots above or below price — used to set trailing stops and identify trend direction.

Parabolic SAR (Stop and Reverse) plots a series of dots above or below price, depending on trend direction. Dots BELOW price = uptrend, dots ABOVE price = downtrend. When the dots flip sides, the trend has reversed. The dots accelerate as the trend extends, which makes them tighten as a built-in trailing stop. PSAR was designed by J. Welles Wilder (the same trader who created RSI and ATR) specifically as a trailing stop tool. The acceleration factor means that the longer a trend runs, the tighter the stop gets — eventually price flips the dots and you exit. It's a self-managing trailing stop system. The weakness of PSAR is that it whipsaws constantly in ranging markets. The dots flip back and forth on every swing, and you get stopped out of every trade. PSAR works in trends and fails in chop. Always pair it with a trend filter (like a higher timeframe MA).

Real trade example

Gold traders riding the 2024 trend from $2,000 to $2,790 used the daily PSAR as a trailing stop. The dots stayed below price for 90% of the move, only flipping at the late-October top — clean exit.

Related terms

Moving Average

beginner

A smoothed line showing the average price over a recent period — the most-used indicator in technical analysis.

Trailing Stop

intermediate

A stop loss that automatically moves in your favor as price moves — locks in profit while letting winners run.

ATR (Average True Range)

intermediate

An indicator that measures average price volatility over a set period — used to size stops and position sizes.

Stop Loss

beginner

An order that automatically closes your trade at a predetermined loss level — your first line of survival.

Stochastic Oscillator

intermediate

A momentum indicator that compares the current close to its recent high-low range — used to spot overbought and oversold conditions.

Fibonacci Retracement

intermediate

Horizontal levels drawn at key Fibonacci ratios (38.2%, 50%, 61.8%) of a prior move — used to find pullback targets.

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