Parabolic SAR

Start with the default settings: AF Start 0.02, Step 0.02, Max 0.20. These have been tested over decades and work well for most stocks. Only adjust after gaining experience.

Not necessarily. The original 'Stop And Reverse' concept assumed always being in the market. Modern usage often just uses SAR for exits and trailing stops, rather than constant reversal.

SAR generates many signals in ranging (sideways) markets. Add an ADX filter - only trade SAR signals when ADX > 25. This dramatically reduces whipsaws.

Update your stop to the current SAR level daily (for daily chart). Never move the stop against your position - SAR only moves in the direction of the trend.

SAR works on any timeframe but performs best on daily and higher. Lower timeframes (1H, 15M) generate many more signals and whipsaws. Start with daily charts.

Only take SAR signals when ADX > 25. For buy signals: SAR flips bullish + ADX > 25 + (optionally) +DI > -DI. For sells: SAR flips bearish + ADX > 25. Skip all SAR signals when ADX < 20.

Both are trend-following indicators with trailing stops. Supertrend uses ATR for band width; SAR uses acceleration factor. Supertrend often gives fewer signals. SAR accelerates toward price; Supertrend maintains ATR-based distance.

Use a lower AF max (e.g., 0.15 instead of 0.20). This prevents SAR from accelerating too quickly and gives the volatile stock more room to move without triggering premature exits.

Not automatically. A tight SAR means the trend has been running for a while. However, be prepared for a flip. You can tighten your mental stop or take partial profits, but let SAR make the final call.

Check weekly SAR first for major trend. If weekly is bullish, look for daily bullish flips for entries. Only trade in the direction of the higher timeframe SAR for higher probability trades.

Adjust AF max based on volatility: AF_max = Base_max × (Average_ATR / Current_ATR). When volatility is high (current ATR > average), AF max decreases (wider stops). When low, AF max increases (tighter stops).

SAR uses the formula: SAR(new) = SAR(old) + AF × (EP - SAR). As AF increases (with new extremes), the (EP - SAR) gap closes faster. The cap on AF (0.20) prevents SAR from catching up too quickly.

In an uptrend (SAR below price), use SAR as a support level for short put strikes. In a downtrend (SAR above price), use SAR as resistance for short call strikes. The SAR level provides a technically-based reference point.

Count stocks with bullish SAR (dots below price) divided by total stocks. Above 70% = broad uptrend. Below 30% = broad downtrend. Use this to adjust overall equity exposure and sector allocation.

SAR excels in trending markets but fails in ranges. It doesn't predict reversals - it confirms trends. It can be late to major reversals because it needs price to flip it. Best used with trend filters like ADX.