Parabolic SAR Explained for Trading Bots

The Parabolic SAR (Stop And Reverse), by Welles Wilder, prints a dot on every bar: below price in an uptrend, above price in a downtrend. When price touches the dot, the trend flips. It was designed as a complete always-in-the-market system, but modern bots mostly use it for what it does best — trailing exits that accelerate as a trend matures.

How It Works

Two parameters control the dots (defaults: AF 0.02, Max AF 0.2):

• AF (acceleration factor): how fast the dots chase price. Each new extreme in the trend speeds the SAR up.
• Max AF: the acceleration cap, so the trail doesn't collapse onto price instantly.

Early in a trend the SAR trails loosely, giving the move room; as the trend extends, it tightens automatically — locking in profit exactly when trends usually get exhausted.

How to Trade It

1. Trailing exit (recommended). Enter with your own logic; exit longs when price touches the SAR dot. This is one of the best mechanical trailing stops available.

2. Flip signals with a filter. Trade SAR flips only in the direction of a higher-timeframe trend — raw flips get shredded in ranges.

3. Stop placement. Use the current SAR value as the stop price and size the position from that distance.

Building It in Setup.Cash

Add Parabolic SAR in the strategy builder and condition on price crossing the SAR value, or reference it in your exit rules. Combine with ADX — Wilder designed them together: ADX says whether to trend-trade, SAR manages the trade.

Tuning

• 0.02 / 0.2: Wilder's classic.
• Lower AF (0.01): looser trail, survives pullbacks, gives back more at the top.
• Higher AF (0.03–0.05): tight trail for fast markets — exits early but protects hard.

Related Reading

Compare with the Supertrend (ATR-based trail, steadier in noise) and the Chandelier Exit and ATR Trailing Stop in the extended library. Backtest each exit against your entries — exit choice often moves results more than entry choice.