How the Parabolic SAR Works
The parabolic sar is one of the most widely-used signals in trading. It’s simple, mechanical, and removes emotional decision-making from your trading by generating clear entry and exit signals based on the SAR indicator.
On SPY, the SAR acts as a trend filter. It won’t catch every exact bottom, but it reliably captures the meat of major moves while keeping you out of chop.
5-Year Performance on SPY
Over five years (2021-07-06 → 2026-07-02), the Parabolic SAR delivered a +1.5% total return on SPY, compounding at 0.3% annually.
At -0.08, the SAR earned less than one units of return for every unit of risk taken. For context, anything above 1.0 is considered good; above 1.5 is excellent.
The catch? A 25.5% max drawdown. At some point during this 5-year run, you’d have been down nearly 26% from peak equity. That’s stomach-churning territory for most traders. If you can’t handle that kind of drawdown, this isn’t for you — or you need to size down.
Risk Assessment
| Metric | Value | Verdict |
|---|---|---|
| Sharpe Ratio | -0.08 | ❌ Weak |
| Max Drawdown | 25.5% | ⚠️ Moderate |
| Win Rate | 41.9% | ⚠️ Below average |
| Profit Factor | 1.02 | ⚠️ Marginal |
| Trades/Year | ~62 total | Active |
The profit factor of 1.02 tells the real story: when the SAR fires, the winning signals are larger than the losing ones. Combined with a 41.9% win rate, this requires careful position sizing to be profitable.
Does the Parabolic SAR Work on SPY?
The parabolic sar struggled to generate meaningful edge on SPY over this 5-year period. With a -0.08 Sharpe ratio and 1.02 profit factor, the risk-adjusted returns are below what most systematic traders would consider acceptable.
This doesn’t mean the SAR is useless — it may work better on different assets, timeframes, or when combined with other filters. But on SPY with default parameters over 5 years, it didn’t produce a compelling standalone edge.
Our take: skip it on SPY unless you’re combining it with other confirmations or using it on different timeframes.
Data source: Yahoo Finance (yfinance). Backtest engine: backtrader. 95% position sizing. 0.1% commission per trade. Last refreshed: July 04, 2026. Not financial advice. Past performance does not guarantee future results.
Year-by-Year Breakdown
| Year | Return | Trades | Win Rate |
|---|---|---|---|
| 2021 | +10.4% | 8 | 41.9% |
| 2022 | -18.6% | 12 | 41.9% |
| 2023 | +26.7% | 10 | 41.9% |
| 2024 | +25.6% | 13 | 41.9% |
| 2025 | +18.0% | 13 | 41.9% |
| 2026 | +9.6% | 6 | 41.9% |
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