The Parabolic SAR is an overlay which plots a series of dots above or below the price, depending on which direction a stock is trading in. If the stock is in an uptrend, the dot is placed below the price. Conversely, the dot is placed above the price if the stock is in a downtrend.
Trading signals are generated when the dot switches from one side of the price to the other. For example, some traders go long when the dot is placed below the price, having previously been above the price. This could be a bullish signal, indicating that the stock is entering an upwards trend. Conversely, some traders go short when the dot rises above the price, having previously been below the price. This could be a bearish signal, indicating that the stock is entering a downwards trend.