Parabolic SAR: How to Spot Trend Reversals

The Parabolic SAR (Stop and Reverse) is a trend-following indicator that helps traders identify trend direction and potential reversals. It places dots (SAR points) above or below price movements, signaling when traders should enter or exit trades.

In this guide, we’ll break down how the Parabolic SAR works, how to use it effectively, and the best Parabolic SAR trading strategies.

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What Is the Parabolic SAR Indicator?

Developed by J. Welles Wilder, the Parabolic SAR helps traders determine trend direction and spot reversals.

• Dots below price → Uptrend (bullish signal).
• Dots above price → Downtrend (bearish signal).

The Parabolic SAR adjusts dynamically, accelerating with the trend and helping traders lock in profits.

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How to Use the Parabolic SAR in Trading

Identifying Trend Direction

• If the dots are below price, the market is in an uptrend.
• If the dots are above price, the market is in a downtrend.

Parabolic SAR Trend Reversal Strategy

• When SAR dots flip from below to above price, it signals a potential bearish reversal.
• When SAR dots flip from above to below price, it signals a potential bullish reversal.

Using Parabolic SAR for Stop-Loss Placement

• In an uptrend, move stop-loss below the SAR dots to protect profits.
• In a downtrend, move stop-loss above the SAR dots to minimize risk.

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Best Parabolic SAR Trading Strategies

Parabolic SAR + Moving Average Strategy

• Buy when SAR flips below price and price is above the 50-day SMA.
• Sell when SAR flips above price and price is below the 50-day SMA.

Parabolic SAR + RSI Strategy

• Buy when Parabolic SAR gives a bullish signal and RSI is below 30 (oversold).
• Sell when Parabolic SAR gives a bearish signal and RSI is above 70 (overbought).

Parabolic SAR + MACD Strategy

• Wait for Parabolic SAR reversal and confirm with MACD crossover.
• A bullish SAR flip + MACD bullish crossover = Strong buy signal.
• A bearish SAR flip + MACD bearish crossover = Strong sell signal.

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Best Parabolic SAR Settings for Different Trading Styles

• Day Trading: Use a faster SAR setting (0.02 step, 0.2 max).
• Swing Trading: Default 0.02 step, 0.2 max for balance.
• Long-Term Investing: Slower settings (e.g., 0.01 step, 0.1 max) to reduce false signals.

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Common Parabolic SAR Mistakes to Avoid

❌ Using SAR in sideways markets – It works best in trending markets.
❌ Ignoring false reversals – Confirm signals with RSI or MACD.
❌ Setting SAR stops too close – Give room for volatility before exiting trades.

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Final Thoughts – Should You Use Parabolic SAR?

The Parabolic SAR is a powerful trend-following and reversal indicator that helps traders time entries, exits, and stop-loss placements.

By combining Parabolic SAR with moving averages, RSI, or MACD, traders can improve their trade accuracy and risk management.

📌 Want to Master Parabolic SAR?

Test different SAR settings and confirm trends with other indicators to refine your strategy!