In the field of technical analysis, Parabolic SAR (SAR - stop and reverse) is a method devised by J. Welles Wilder, Jr., to find trends in market prices or securities. It may be used as a trailing stop loss based on prices tending to stay within a parabolic curve during a strong trend.
The concept draws on the idea that time is the enemy (similar to option theory's concept of time decay), and unless a security can continue to generate more profits over time, it should be liquidated. The indicator generally works well in trending markets, but provides "whipsaws" during non-trending, sideways phases; as such, Wilder recommended establishing the strength and direction of the trend first through the use of things such as the Average Directional Index, and then using the Parabolic SAR to trade that trend.A parabola below the price is generally bullish, while a parabola above is generally bearish.
The Parabolic SAR is calculated almost independently for each trend in the price. When the price is in an uptrend, the SAR appears below the price and converges upwards towards it. Similarly, on a downtrend, the SAR appears above the price and converges downwards.