Parabolic SAR

The original system is 'always in' - you're always either long or short. However, most retail traders modify this to be long-only (buy on bullish flip, sell on bearish flip, go to cash). This is especially appropriate for Canadian registered accounts where shorting isn't allowed.

SAR is designed for trending markets. In ranges, price oscillates above and below SAR frequently, causing many flips and whipsaws. Each flip triggers a trade that quickly reverses. Use ADX > 25 filter to avoid trading SAR in ranging conditions.

Yes, though it defeats part of SAR's purpose. Some traders use the initial SAR as a reference but set their own stop based on ATR or swing points. Others use SAR purely for direction and set independent stops.

It varies by instrument and market conditions. In trending markets, flips may occur every 2-4 weeks. In choppy markets, flips can happen every few days. Expect 2-6 flips per month per instrument typically.

Daily charts work best for most traders - providing reliable signals without excessive noise. Weekly is good for longer-term position trading. Shorter timeframes (4H, 1H) require more active monitoring and have more whipsaws.

Test both on your specific instruments. Standard (0.02/0.02/0.20) works for most. For volatile stocks, try lower settings (0.01/0.01/0.10). For smoother instruments or shorter timeframes, try higher settings. Backtest before live trading.

This is a valid approach. Entering on the flip gives you the signal's exact price, but waiting for a pullback to near the SAR dots can give a better entry. The tradeoff is you might miss the trade if no pullback occurs.

Use SAR for trend direction and stops; MACD for momentum confirmation. Enter when SAR flips bullish AND MACD is above its signal line (or histogram positive). Exit on SAR flip, optionally confirming with MACD turning negative.

This creates a wide initial stop. You have three options: 1) Take smaller position (risk-based sizing), 2) Wait for SAR to tighten before entering, 3) Use your own tighter stop instead of SAR. Option 1 is most consistent with SAR methodology.

SAR doesn't have a built-in partial profit mechanism. A common approach: take 50% profit at a fixed target (like 2:1 R) and let SAR trail the remaining 50%. This locks in gains while maintaining trend exposure.

Scan for: recent flips (within 2 bars), ADX > 25, EMA alignment, above-average volume. Rank results by quality score. Alert on new flips meeting criteria. Track existing positions' SAR levels daily. Most platforms support custom scans.

Monitor ATR percentile. When ATR > 75th percentile (high volatility), use lower AF settings. When ATR < 25th percentile, use higher AF. Implement as a lookup table or formula-based adjustment. Test thoroughly before live trading.

For each position: Heat = Position Value × (SAR Distance / Entry Price). Sum all positions. Example: $10,000 position with 3% SAR distance = $300 heat. If 5 positions each contribute $300, total heat = $1,500. Keep below 10% of portfolio.

In trending regimes (ADX > 25): trade SAR normally. In ranging regimes (ADX < 20): either skip SAR entirely or use very conservative settings. In volatile regimes: lower AF for wider stops. Track regime using ADX or volatility measures.

Use 10+ years of data with 200+ trades minimum. Test multiple parameter sets. Use walk-forward analysis (optimize 3 years, test 1 year, roll forward). Include realistic slippage (0.05-0.1%) and commissions. Compare Sharpe ratio and max drawdown across parameter sets.