Parabolic SAR: Wilder’s Own Estimate Was That Trends Run About 30 Percent of the Time — and the Value Cannot Pass the Prior Two Bars

Source 1 says the indicator “generally works only in trending markets” and creates whipsaws otherwise. That is a direction without a size.^[1]

Source 2 puts a number on it, and attributes the number to Wilder: “According to Wilder's estimates, the Parabolic SAR works best with trending securities, which occur roughly 30% of the time.” “This means the indicator will be prone to whipsaws over 50% of the time or when a security is not trending.”^[2]

So the tool is described by the platform that implements it as being out of its element most of the time. It states the purpose plainly — “The Parabolic SAR follows the price like a trailing stop. In an uptrend, it continuously rises, protecting profits as prices increase.” — and the remedy Wilder himself gave: “Parabolic SAR should also be used with other indicators and technical analysis techniques. For example, Wilder's Average Directional Index can estimate the trend's strength before considering signals.”^[2]

This page reports the 30 percent as an estimate attributed to Wilder by source 2. Neither source shows the measurement behind it, and this page did not verify it.^[2]

The recursion both sources give looks unconstrained: “Current SAR = Prior SAR + Prior AF(Prior EP - Prior SAR)” in an uptrend, and “Current SAR = Prior SAR - Prior AF(Prior SAR - Prior EP)” in a downtrend, with “Extreme Point (EP): The highest high of the current uptrend.” and “Extreme Point (EP): The lowest low of the current downtrend.”^[1][2]

But source 2 adds a hard limit that the formula does not contain: “Note however that SAR can never be above the prior two periods' lows. Should SAR be above one of those lows, use the lowest of the two for SAR.”^[2]

And its mirror in a downtrend: “Note that SAR can never be below the prior two periods' highs. Should SAR be below one of those highs, use the highest of the two for SAR.”^[2]

This is the sort of rule that separates two implementations of the same published formula. This page's earlier version listed the exact rules as not established; source 2 supplies this one. Its worked example — “13-Apr-10 SAR = 48.28 = 48.13 + .14(49.20 - 48.13)”^[2]

“The Step, also referred to as the Acceleration Factor (AF), is a multiplier that influences the rate-of-change in SAR, meaning it impacts how closely SAR follows price movement.” Source 2 separates the starting Step from the Maximum Step and gives the defaults: “The default parameters are 0.02 for the Starting Step and 0.2 for the Maximum Step.”^[2]

The direction of the effect is stated both ways: “A lower step moves SAR further from price, making a reversal less likely.” and “A higher step moves SAR closer to the price action, making a reversal more likely. The indicator will reverse too often if the step is set too high. This will produce whipsaws and fail to capture the trend.”^[2]

And it ranks them: “While the Maximum Step can influence sensitivity, the Step carries more weight because it sets the incremental rate of increase as the trend develops.” — also “note that increasing the Step ensures that the Maximum Step will be hit quicker when a trend develops”^[2]

It declines to give a recommended setting at all: “There is no golden rule or one-size-fits-all setting. Each security should be evaluated based on its characteristics.” and “The wrong settings will result in whipsaws, losses, and frustration.”^[2]

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 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 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]

This page now rests on two sources: an encyclopedia article and one charting platform's own documentation. Wilder's 1978 book was not consulted, though both sources name him.^[1][2]

Vendor limitation: source 2 is StockCharts describing the overlay as it implements it. Its capping rule, its defaults and its parameter advice are that platform's implementation and guidance, not a standard every charting package follows — which is exactly why two platforms can draw different SAR dots from the same prices.^[2]

Not established: the initial SAR value at the start of a trend and how platforms seed it; whether the 30 percent estimate holds for any named market or period; whether any SAR rule is profitable. No backtest figures of this page's own appear anywhere on it.^[1][2]

Retrieved 2026-09-28. Source 2 HTTP 200, read in full (138 lines); 20 quotations from it were each searched for in the fetched text before publication.^[2]