Parabolic SAR (Stop and Reverse)

Overview

The Parabolic SAR operates on Wilder's principle that "time is the enemy" - unless a position continues generating profits over time, it should be liquidated. The indicator uses two key variables: the Extreme Point (EP), which tracks the highest high in uptrends or lowest low in downtrends, and the Acceleration Factor (AF), which starts at 0.02 and increases by 0.02 each time a new EP is reached, up to a maximum of 0.20. This creates the distinctive parabolic curve that gives the indicator its name, with dots that start slowly and accelerate toward price as the trend matures.

What makes the Parabolic SAR unique is its time-based acceleration mechanism. At the beginning of a trend, the SAR dots trail price at a comfortable distance, giving the move room to develop. As time passes and the trend extends, the acceleration factor causes the dots to move closer to price at an increasing rate. This design ensures that when a trend finally loses momentum, the SAR quickly catches up and signals a reversal. Wilder estimated that markets trend only 30% of the time, making this indicator particularly valuable when combined with trend strength filters like his Average Directional Index (ADX).

Interpretation & Trading Signals

Example Usage

Code examples will be available once the Rust implementation is complete.