The Parabolic Stop and Reverse (SAR) is a trend-following indicator that plots dots above or below price to define the current trend direction and provide trailing stop levels. Developed by J. Welles Wilder, the indicator accelerates toward price as the trend matures, eventually crossing price to signal a reversal. The parabolic curve of the dots gives the indicator its name.
Dots below price = bullish trend; dots above price = bearish trend. Acceleration Factor (AF) starts at 0.02 and increases by 0.02 with each new extreme, capped at 0.20. SAR dots act as trailing stop levels. Flip points (when dots switch sides) signal potential trend reversals. Works best in trending markets; generates excessive signals in ranges.
Enter long when SAR dots flip from above to below price, signalling a new bullish trend. Confirm the flip with an additional indicator (ADX above 25, moving average alignment) to filter false signals. Enter on the first SAR flip after a consolidation or range breakout. Use the initial SAR dot as a trailing stop from the outset.
Exit when SAR dots cross to the opposite side of price, signalling trend termination. Trail stops using the SAR dots — they automatically tighten as the trend matures. Exit and reverse when a confirmed SAR flip occurs with volume and momentum confirmation. Take profits before the SAR catches up to price during a decelerating trend.
15M, 1H, 4H, Daily
Parabolic SAR works brilliantly in trending markets but generates heavy losses in ranging conditions — always pair it with a trend filter like ADX (only trade SAR signals when ADX is above 25). The default acceleration settings (0.02/0.20) suit daily charts; consider reducing the step to 0.01 for lower-timeframe trading. SAR is most useful as a trailing-stop mechanism rather than an entry tool.
The Average Directional Index quantifies trend strength on a scale from 0 to 100, regardless of direction. Developed by J. Welles Wilder, ADX is derived from two directional movement indicators (+DI and -DI) that measure bullish and bearish pressure respectively. A rising ADX above 25 signals a strengthening trend, while ADX below 20 indicates a ranging or trendless market — making it an invaluable filter for choosing between trend and range strategies.
Williams %R is a momentum oscillator developed by Larry Williams that measures the current closing price relative to the highest high over a specified lookback period. It ranges from 0 to -100, with readings above -20 indicating overbought conditions and readings below -80 indicating oversold conditions. Williams %R is closely related to the Stochastic oscillator but inverted, making it particularly responsive to price reversals.
Keltner Channels are volatility-based envelopes plotted above and below an exponential moving average using the Average True Range. Unlike Bollinger Bands, which use standard deviation, Keltner Channels produce smoother bands that are less reactive to individual price spikes. This makes them effective for identifying trend direction, overbought/oversold conditions, and volatility squeeze setups when combined with Bollinger Bands.
The Vortex Indicator consists of two oscillating lines — VI+ (positive trend movement) and VI- (negative trend movement) — that capture the directional movement of price through the relationship between the current high and prior low, and the current low and prior high. Crossovers between these lines signal trend changes and provide entry and exit timing for trend-following strategies across any market.