Parabolic SAR

A trailing stop that closes in on price as the trend runs, and jumps to the other side when price touches it.

What it measures

In a rise the SAR sits below price and moves up each bar by a fraction of the distance to the highest high so far. The fraction, the acceleration factor, starts at step and grows by step each time the rise makes a new high, up to maximum, so the stop tightens faster the longer the trend runs. A fall is the mirror image. When a bar’s low reaches the SAR of a rise, or its high the SAR of a fall, the trend reverses.

How traders read it

Traders treat the SAR as a stop: hold a long while price stays above it, and exit or reverse when it flips. In a sideways market it flips back and forth, so it is usually paired with a trend filter such as the Average Directional Index.

Formula

next SAR = SAR + AF × (EP − SAR)
EP = highest high of the rise, or lowest low of the fall
AF = step, rising by step at each new EP, up to maximum
in a rise, SAR is no higher than this bar's or the previous bar's low
in a fall, SAR is no lower than this bar's or the previous bar's high
on a reversal, SAR = the old EP, EP = this bar's extreme, AF = step

This follows TA-Lib’s SAR. The first two bars decide the first trend, and the value on each bar is the SAR that applied during it. On charts it draws as a dotted line, which jumps at each reversal.

Settings and output

Call: parabolicSar(step, maximum)

Setting	Chart default
`step`: Step	0.02
`maximum`: Maximum	0.2

What you get: a number.

Warm-up: with parabolicSar(0.02, 0.2), it asks for 0 bars of history and a run-up of 100, and its first value came on bar 2 of the example data.

Chart

Parabolic SAR drawn by its own code on example prices

The prices are made up, hourly, and the same on every page, so the chart shows how the indicator behaves, not how a market behaved.

In an algorithm

function onIntervalClose() {
  const stop = parabolicSar(0.02, 0.2);
  if (stop !== null && stop < CLOSE && OPEN_POSITIONS_COUNT === 0) {
    openPosition("BUY", { quantity: 10000, stopLossPips: 30 });
  }
}