The Parabolic SAR (Stop and Reverse) is a trend-following technical indicator developed by J. Welles Wilder that places dots above or below a price chart to indicate potential stop-loss levels and signal trend reversals. When the dots are below the price, the indicator signals an uptrend — dots serve as trailing stop-loss levels for long positions. When dots are above the price, a downtrend is indicated — dots serve as trailing stop-loss levels for short positions. The indicator gets its name from the parabolic shape formed by the accelerating dots as a trend matures — the dots progressively tighten toward the price as the trend ages, eventually being crossed by the price to signal a reversal. The Parabolic SAR is most effective in strongly trending markets and notoriously unreliable in range-bound or choppy conditions — where it generates frequent and costly false reversal signals. In Indian equity markets, Parabolic SAR is widely used on Nifty 50, Bank Nifty, and individual stock charts as a dynamic trailing stop-loss mechanism for positional and swing traders who want a systematic, rules-based exit strategy rather than relying on subjective price analysis.
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