The Parabolic SAR (Stop and Reverse) is a technical indicator designed by J. Welles Wilder to help traders identify the direction of a market trend and potential reversal points. It appears on a chart as a series of dots placed either above or below the price. When the dots are positioned below the price, it signals an uptrend, suggesting that traders should look for buying opportunities. Conversely, when the dots move above the price, it indicates a downtrend, hinting that selling opportunities might be favourable.

The indicator follows price closely and shifts position when the trend begins to lose strength or reverse direction. This “stop and reverse” behaviour makes it useful for trailing stop-losses, allowing traders to lock in profits as the trend progresses. The Parabolic SAR’s sensitivity can be adjusted by changing the acceleration factor, which determines how quickly the dots move relative to price movements.

While the Parabolic SAR is most effective in trending markets, it can produce false signals in sideways or choppy conditions. Many traders combine it with other indicators such as moving averages or the Relative Strength Index (RSI) to filter out noise and confirm signals. Overall, the Parabolic SAR provides a simple yet powerful visual method for identifying trend direction, spotting potential reversals, and managing trades efficiently.