Parabolic SAR: The Ultimate Exit Strategy Tool
"Buy low, sell high" is easy to say, but knowing exactly when to sell is the hardest part of trading. The Parabolic SAR (Stop and Reverse) is a legendary indicator designed specifically to solve this problem.
What is Parabolic SAR?
The indicator appears as a series of dots above or below the price candles.
- Dots Below Price: Indicates a bullish trend.
- Dots Above Price: Indicates a bearish trend.
Because the dots "accelerate" over time as the trend continues, it is the perfect tool for setting Trailing Stop Losses.
How to Build a Winning Exit Strategy
1. Setting the Trailing Stop
If you are in a long position, you can move your stop-loss order to match the level of the most recent Parabolic SAR dot. This allows you to stay in the trend as long as possible while automatically locking in profits as the price moves up.
2. Identifying Reversals
When a dot flips from below the price to above the price, it is a clear signal that the current trend has ended. This is the "Stop and Reverse" point.
The Golden Rules of SAR
Rule 1: Only Use in Trending Markets
The Parabolic SAR is a disaster in sideways/ranging markets. It will generate frequent "whipsaws" (false signals) that can chip away at your capital. Always check the Aroon Indicator to confirm if a trend is actually present.
Rule 2: Don't Buy Just Because the Dot Flipped
While the SAR is an elite exit tool, it is only a mediocre entry tool. Always use it in conjunction with other indicators like Tenkan/Kijun crosses for entries.
Parameter Tuning for Crypto
The standard acceleration factor is 0.02. Because crypto is so volatile, some traders prefer a factor of 0.01 to give the price more "room to breathe" and avoid being stopped out by minor fluctuations.
Protect Your Profits
Don't let a winning trade turn into a loss. Calculate your exact SAR levels with our Parabolic SAR Calculator and automate your exit plan.