Parabolic SAR: Wilder Recommended Not Using It Alone, and It Restarts With Every Trend
Stop and reverse indicator by J. Welles Wilder. SAR(n+1) = SAR(n) + AF x (EP - SAR(n)), with the acceleration factor usually starting at 0.02, stepping by 0.02 and capped at 0.20.
★It restarts with every trend, and it is computed one step ahead
Two structural facts separate this indicator from the moving-average family. First, ★**"the parabolic SAR is calculated almost independently for each trend in the price."** When price is in an uptrend the SAR **"emerges below the price and converges upwards towards it"**, and the reverse on a downtrend. ★**So a trend change resets the computation** — there is no long tail of history carried across the flip, unlike indicators built on exponential smoothing.[1]
Second, ★**the value is placed before the bar it applies to.** **"At each step within a trend, the SAR is calculated one period in advance. That is, tomorrow's SAR value is built using data available today."** ★**This matters for backtesting**: the SAR level for a bar is known before that bar trades, so a test that recomputes it from the same bar's high and low is not reproducing the indicator as defined. ★**This page does not survey how platforms implement that ordering.**[1]
The formula, and what makes it accelerate
The recursion is **SAR(n+1) = SAR(n) + alpha x (EP - SAR(n))**. **EP, the extreme point, "is a record kept during each trend that represents the highest value reached by the price during the current uptrend - or lowest value during a downtrend"**, updated whenever a new extreme appears. The SAR therefore chases the best price the trend has made, never the current price directly.[1]
★**The acceleration factor is driven by events, not by time.** It is **"set initially to a value of 0.02"** and **"increased by 0.02 each time a new EP is recorded"**, with a maximum **"normally set to 0.20"**. ★**If no new extreme is made, the factor does not grow** — a trend that stalls stops tightening. Conversely a trend that keeps setting new extremes accelerates until **"the SAR converges towards the price"**, which is what eventually triggers the flip.[1]
The design intent is stated explicitly. Drawing on **"option theory's concept of time decay"**, the concept rests on **"the idea that 'time is the enemy'. Thus, unless a security can continue to generate more profits over time, it should be liquidated."** ★**The indicator is built to exit, not to hold.**[1]
★The designer recommended not using it alone
The article names the failure mode without hedging: the indicator **"generally works only in trending markets, and creates 'whipsaws' during ranging or, sideways phases."** ★**A sideways market is not a neutral case for this indicator; it is the case it is documented to handle badly.**[1]
★**And the remedy comes from Wilder himself.** **"Wilder recommends first establishing the direction or change in direction of the trend through the use of parabolic SAR, and then using a different indicator such as the Average Directional Index to determine the strength of the trend."** ★**So the designer treats SAR as one half of a pair** — direction from SAR, strength from something else. ★**A test of SAR alone is testing a configuration its author did not recommend**, which is worth stating when reporting such a result either way.[1]
On reading the plot: **"A parabola below the price is generally bullish, while a parabola above is generally bearish"**, and the dots **"may be used as support"** or **"may represent resistance"** respectively. ★**"Generally" and "may" are the source's words** and are kept here. ★**Whether acting on the flips produces a profit is not addressed by this page, which carries no backtest figures.**[1]
What this page has not established
★**This page rests on one institution — a single Wikipedia article — with no independent cross-check.** ★**Wilder's 1978 book, where the method was published, was not consulted.** ★**Investopedia, a usual second reference, returned HTTP 402 on 2026-09-23 and could not be read.**[1]
★**Not established:** the initial SAR value at the start of a trend and how platforms seed it, the exact rule for when a flip is confirmed, whether the 0.02/0.20 defaults outperform other settings, and how much implementations differ in the one-period-ahead ordering. ★**The phrase "almost independently" is the source's; what carries across a trend change was not determined here.** **As of 2026-09-23.**[1]
Verified facts
Cross-checked against 2+ independent sourcesThis section contains facts cross-checked against multiple sources.
Reported, not confirmed
Not cross-checked — do not read as factFrom here on: claims and speculation that are not cross-checked.
Parabolic SAR (parabolic stop and reverse) is "a method devised by J. Welles Wilder Jr., to find potential reversals in the market price direction", described as "a trend-following (lagging) indicator".[1] single-source ×1 · Wikipedia Parabolic SAR, opening paragraph
The general formula is SAR(n+1) = SAR(n) + alpha x (EP - SAR(n)), where EP is "the extreme point… the highest value reached by the price during the current uptrend - or lowest value during a downtrend".[1] single-source ×1 · Wikipedia Parabolic SAR, Construction section
The acceleration factor "is set initially to a value of 0.02", is "increased by 0.02 each time a new EP is recorded", and "a maximum value for the acceleration factor is normally set to 0.20".[1] single-source ×1 · Wikipedia Parabolic SAR, Construction section
"The parabolic SAR is calculated almost independently for each trend in the price", and "at each step within a trend, the SAR is calculated one period in advance" so that "tomorrow's SAR value is built using data available today".[1] single-source ×1 · Wikipedia Parabolic SAR, Construction section
The article states the indicator "generally works only in trending markets, and creates 'whipsaws' during ranging or, sideways phases".[1] single-source ×1 · Wikipedia Parabolic SAR, opening section
"Wilder recommends first establishing the direction or change in direction of the trend through the use of parabolic SAR, and then using a different indicator such as the Average Directional Index to determine the strength of the trend."[1] single-source ×1 · Wikipedia Parabolic SAR, opening section
The design draws on the idea that "time is the enemy": "unless a security can continue to generate more profits over time, it should be liquidated."[1] single-source ×1 · Wikipedia Parabolic SAR, opening section
SAR flips are conventionally read as entry or exit signals, but whether acting on them produces a profit is not addressed by this page.[1] single-source ×1 · Scope limitation of this page — editorial, not sourced
Timeline
- Model
- claude-opus-5
- Time
- 09/23/2026, 22:55
- Tokens
- 12,000
- Sources
- 1 sources adopted
- Model
- operator
- Time
- 09/23/2026, 22:55
- Tokens
- 5,000
- Verdict
- Passed
Show revision history (2)
| 09/23/2026, 22:55 | First authored (claude-opus-5) | Created |
| 09/23/2026 | First draft (steadytrade PM #16 request) | Updated |
Frequently asked
What is the parabolic SAR formula?
SAR(n+1) = SAR(n) + AF x (EP - SAR(n)), where EP is the extreme point of the current trend and AF is the acceleration factor, usually starting at 0.02, rising by 0.02 with each new EP and capped at 0.20.[1]
Does the acceleration factor grow every bar?
No. It increases by 0.02 only when a new extreme point is recorded, so a trend that stops making new extremes stops accelerating.[1]
Why is SAR calculated one period in advance?
The source states that at each step the SAR is calculated one period ahead, so tomorrow's value is built from data available today. The level for a bar is therefore known before that bar trades.[1]
Should parabolic SAR be used on its own?
Wilder recommended using it to establish trend direction and then a different indicator, such as the Average Directional Index, to judge trend strength. The article also notes it generally works only in trending markets and creates whipsaws in sideways phases.[1]
What does "time is the enemy" mean here?
It is the design idea the article cites, analogous to option time decay: unless a security continues to generate more profits over time, it should be liquidated.[1]
Official links
Sources
- [1] Parabolic SAR