Parabolic SAR on a Live Gold Chart

What it shows

One mark per candle, drawn as separate points and not as a joined line. Marks below the candles mean an uptrend is in force; marks above mean a downtrend. A flip puts the mark on the opposite side.

How Pravex works it out

1. Start: from the second candle on. If its close is above the first close, begin in an uptrend with the dot at the first candle’s low and the second candle’s high as the extreme point. Otherwise begin in a downtrend with the dot at the first candle’s high and the second candle’s low as the extreme.
2. Each candle the dot moves toward the extreme by a share of the gap: dot = dot + factor × (extreme − dot). The factor begins at the starting step. Whenever a candle sets a new extreme (a higher high in an uptrend, a lower low in a downtrend), it grows by the step added per extreme, never past the largest step.
3. Flip: in an uptrend, if the dot ends up above the candle’s low, the trend turns. The dot jumps to the larger of this candle’s high and the old extreme, the extreme becomes this candle’s low, and the factor goes back to the starting step. A downtrend flips the same way in mirror.
4. Last, the dot is held back. In an uptrend it can never sit above the lows of the previous two candles, and in a downtrend never below their highs, so it never goes inside the range of the previous two candles.

Settings

Setting	Default	What changing it does
Starting step	0.02	The first factor after a start or a flip. A larger number makes the dot close in on price quickly from the first candle.
Step added per new extreme	0.02	How much the factor grows each time the trend makes a new extreme. Larger steps make the dot accelerate quicker toward price.
Largest step	0.2	The cap on the factor. Once it reaches this, the dot closes 20% of the gap to the extreme each candle and no more.

How traders read it

The mark is read as a trailing stop that moves with the trend. Price staying above the dots says the uptrend is intact, and the candle where the dots jump to the other side says the old trend just broke. Using the current dot as a stop and moving it with each new one is the plainest way to trade it.

The flip is the moment that counts. In a clean trend there are only a few of them, and each one is far apart. The acceleration makes the dots hug price tightly late in a long run, so the stop gets closer exactly when the move is old.

When it misleads

The dots are built for trends and are poor in ranges. Sideways gold flips the dots over and over, and every flip comes at a worse price than the last one. Quicker settings make that worse. The flip also happens on a touch, not a close, so a wick can flip the dots for one candle in a market that is still trending. The 0.02, 0.02 and 0.2 defaults are the usual habit, not a rule.

Questions and answers

What do the Parabolic SAR settings mean?

The starting step is the first factor, the step added per new extreme is how much it grows when the trend sets a new high or low, and the largest step is the cap. Out of the box those are 0.02, 0.02 and 0.2.

What do the dots above and below price mean?

Dots under the candles mean an uptrend, dots above mean a downtrend. A switch of sides marks the candle where price touched the dot.

Why did the SAR flip on a wick?

The flip tests the candle’s low (or high), not its close. A quick spike through the dot is enough, even if the candle closes back on the trend side, as fast news candles often do.

Why does the dot never sit inside the last two candles?

The code holds it at or beyond the previous two candles’ lows in an uptrend, or highs in a downtrend. Without that rule the dot could land inside a candle that has already traded.

Related: Supertrend, MA Cross, Ichimoku Cloud, Average True Range, every indicator.