Parabolic SAR Backtest

Parabolic SAR is designed to stay aligned with the current trend in the SPDR S&P 500 ETF Trust (SPY) by staying long in uptrends, short in downtrends, and reversing when the trailing SAR level is breached.

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Strategy summary

Parabolic SAR is a stop-and-reverse trend-following strategy built to pursue sustained directional movement from the premise that accelerating trailing stops can keep exposure aligned with trend, using Wilder’s Parabolic SAR on SPY.

The indicator tracks the current trend’s extreme point, or EP, and an acceleration factor, or AF. In an uptrend, EP is the highest High reached since the uptrend began. In a downtrend, EP is the lowest Low reached since the downtrend began. AF starts at 0.02, increases by 0.02 when the trend makes a new extreme, and is capped at 0.20. This causes SAR to move toward price as the trend extends.

For this BTS implementation, the SAR level for day t is known before day t begins. If SPY is in an uptrend state and the daily low is strictly below the known SAR level, the strategy records a reversal to short after the close. If SPY is in a downtrend state and the daily high is strictly above the known SAR level, the strategy records a reversal to long after the close. Equality does not reverse the state.

The reversal trade is executed at the next open. This preserves a deterministic EOD mapping of Wilder’s stop-and-reverse logic while avoiding any claim that the backtest fills an intraday stop order at the SAR level.

What this strategy is not

• Not a long-only SPY/cash timer; the strategy is always in the market and can be either long or short SPY.
• Not an intraday stop-fill simulation; reversals are recorded after the close and executed at the next open, not at the SAR level.
• Not a close-only crossover, moving-average, ADX, volatility, or trend-quality composite; reversals require strict daily High/Low penetration of the active SAR stop.
• Instead: a single-instrument stop-and-reverse system that flips between long and short SPY when price strictly penetrates the active SAR stop.

Report summary

Benchmark summary

The primary benchmark is buy-and-hold SPY. That is the cleanest control because the strategy trades the same instrument, but adds a Parabolic SAR timing and sign-flip overlay that can move the portfolio from long SPY to short SPY.

Removing the SAR overlay leaves passive SPY exposure. The comparison is therefore intended to show what the stop-and-reverse rule changed: trend-alignment benefit, whipsaw cost, short-side drag, and the opportunity cost of being short or reversed during equity advances.

For the benchmark-selection framework, see How to Choose the Right Benchmark.

• Primary Benchmark: buy-and-hold SPY.
• Preserves: the same SPY instrument and broad equity exposure.
• Removes: the Parabolic SAR timing, stop-and-reverse, and sign-flip overlay.
• Excludes: cash, SHY, an always-short SPY position, a long-only Parabolic SAR timer, or a platform-specific SAR variant.

Key metrics: 2021–2025 free preview

• The free preview is a recent-window orientation tool, not the complete evidence set.
• A five-year free-preview window can be useful, but it can also overstate or understate the full historical tradeoff.
• The full report expands the scorecard across the complete report window and adds the path-level interpretation behind the headline numbers.

In this five-year free preview, Parabolic SAR continued to trail buy-and-hold SPY. The strategy lost capital with a -7.9% CAGR and a $6,636 rebased ending value, while the benchmark compounded to $19,791 with a 14.7% CAGR.

Further research

• BTS Methodology
• What Makes a Backtest Reliable?
• Why a Standardized Methodology Matters in Backtesting
• How to Choose the Right Benchmark
• Strategy Library