The formula and explanation is also detailed in Trading Systems & Methods by Perry J Kaufmann (p442).

This is an extract from it (apologies if there are any typos):

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To calculate the SAR value, first assume a long or short position. If the market has recently moved lower and is now above the lows of that move, assume a long. Call the lowest point of the previous trade the SAR initial point (SIP) because it will be the starting point for the SAR calculation (SARI = SIP). Calculate each following SAR as:

SAR(today) = SAR(prior) + AF(today) x [High(today) - SAR(prior)]

This is an exponential smoothing formula using the high price for a long position and the low when a short is held. For this method the smoothing constant is called the acceleration factor (AF), and it is initially set to .02 at the beginning of each trade. After a day in which a new extreme occurs (a new high when long, or a new low when short), the AF is increased by .02. In terms of moving average days, the AF begins at 99 days and increases speed to a maximum of a 9-day moving average, but not in a linear fashion, The acceleration factor, AF, cannot be increased above the value .20.

In the SAR calculation, the highest high of the current move is used when a long position is held, and the lowest low is used when a short is held. This feature keeps the SAR at its highest possible level during an upward move. An additional rule compensates for this strength and prevents premature reversal by not allowing the SAR to get any closer than the price range of the most recent 2 days:

If long, the SAR may never be greater than the low of today or the prior day. If it is greater than this low, set the SAR to that low value. A reversal will occur on a new intraday low that penetrates the SAR.

For short positions, the SAR is initialised as the high of the recent move, AF = .02, and the daily calculation uses the lowest low of the current price move. To allow some price fluctuation, the SAR may never be below the high of today or the prior day.

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