Indicator guide
Parabolic SAR Backtesting Guide
Parabolic SAR is a trailing indicator that places stop-and-reverse points relative to price. A valid backtest converts its readings into explicit, time-aware rules and evaluates them after costs without assuming profitability.
How Parabolic SAR is commonly used
Researchers use Parabolic SAR for trend-following entries, trailing exits, and reversal signals. The indicator should be calculated only from information available at each simulated decision time.
Parameters to define
State the acceleration factor, increment, and maximum. Parameter choices affect signal frequency and lag, so compare a limited, predefined range rather than selecting one value after reviewing the full history.
How to evaluate a test
Review net return, maximum drawdown, volatility, trade count, win/loss size, exposure, and behavior across subperiods. Compare with a simple benchmark and test unseen data.
Research checklist
- acceleration factor, increment, and maximum
- Signal timing and execution price
- Fees, spread, and slippage
- Out-of-sample stability
Questions and answers
How do I backtest Parabolic SAR?
Define the Parabolic SAR calculation and signal rules, prevent future data from entering each decision, apply realistic execution costs, and validate on a separate period.