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Parabolic SAR: Formula, Acceleration Factor and Stop-and-Reverse

How Wilder's Parabolic SAR works (step 0.02, max 0.2), how the trailing level flips, and what the UP/DOWN reading does not tell you.

Reviewed · Sources at the end · How Vyreon measures
Vyreon's per-security reports are not live yet; this page describes what they will measure. Examples are illustrative.

Parabolic SAR ("stop and reverse") is a trailing level that sits below the price during an uptrend and above it during a downtrend. When the price crosses it, the indicator flips to the other side. Welles Wilder introduced it in 1978 with a step of 0.02 and a maximum of 0.2, and those are the parameters Vyreon uses.

Parabolic SAR Formula

Each session the SAR moves toward the extreme point (EP), the highest high of the current uptrend or the lowest low of the current downtrend:

SAR next = SAR + AF × (EP − SAR)

The acceleration factor (AF) starts at 0.02. Each time the trend makes a new extreme, AF rises by 0.02, up to a maximum of 0.2. The longer a trend keeps making new extremes, the faster the SAR closes in on the price, which gives the curve its parabolic shape.

Illustrative example: after nine new highs in an uptrend, AF has reached its 0.2 cap. If the SAR is 95 and the EP is 105, the next SAR is 95 + 0.2 × 10 = 97.

Stop-And-Reverse Convention

  • In an uptrend, the SAR may not rise above the lows of the previous two sessions.
  • In a downtrend, it may not fall below the highs of the previous two sessions.
  • If a session's low breaks below an uptrend SAR (or its high breaks above a downtrend SAR), the trend flips. The new SAR is set to the old extreme point, the EP becomes that session's low (or high), and AF resets to 0.02.

Wilder designed it as a trailing stop. That is the origin of the name, not a rule anyone has to follow.

How Vyreon Calculates It

Vyreon runs Parabolic SAR over the full daily history it holds for each security, on daily bars adjusted for splits and dividends. The starting direction is up if the second session's close is at or above the first's. Vyreon reports the SAR level for the latest session and the trend side: UP (SAR below price) or DOWN (SAR above price).

What Parabolic SAR Does Not Tell You

  • It can flip repeatedly in sideways markets, because it always assumes there is a trend.
  • A flip describes what the price just did; it does not forecast the next move.
  • The value depends on the starting point and history length, so different charting tools can show slightly different levels.

Related: ADX · ATR · moving averages · Ichimoku cloud

Sources

  • J. Welles Wilder Jr., New Concepts in Technical Trading Systems (1978): the Parabolic SAR, its 0.02 step and 0.2 maximum.

Its use as a trailing stop and its flips are trading conventions; we know of no peer-reviewed source establishing them as forecasts.