Hi,
SAR (Stop and Reverse) Trading seem to be quite popular these days with traders. This is an "always in the market" strategy.
Traders believe that if they stay always in the market they will be more profitable. However there is a popular market maxim that "Standing aside is a position"
Without getting into the debate about which is a right or wrong strategy, let’s check this recent trade in ICICI Bank futures that got stopped out yesterday.
In the chart given above we can see two trades i.e. a short trade that concluded yesterday (From here on referred as trade A), and a long trade that started yesterday (From here on referred as trade B)
Check out the range (recent top compared with SAR level, marked with red horizontal lines in the chart) that was broken when the respective stops were taken out.
In Trade A range was approximately 31 points when stop was taken out, a system short was initiated.
In Trade B range was approximately 55 points when stop was taken out, a system long was initiated.
Market conditions during both the trades.
Volatility was comparatively less at the time trade A was initiated on the down side hence giving us a tighter stop loss therefore providing a better risk to reward ratio.
Learning from these trades
1) Initiating a trade based on SAR during low volatility period (Trade A) results in better entries thus better overall profitability
2) If one wants to take every SAR trade that a system alerts, she/he should ideally trade with bigger volumes during low volatility period (trade A) than higher volatility period (trade B).Position Sizing Strategy to be implemented as per trends in volatility.
3) During higher volatility periods (Trade B) one should enter a trade on a pull back (Low Risk Entry) or closer to the range extremes than getting caught in the middle part of the range.
System trading versus Discretionary trading?
Both trading methods have their advantages and disadvantages. Traders, who find it difficult to stay disciplined, should use system trading as it eliminates emotions from trading.
While traders with sufficient market experience should prefer discretionary trading as it gives better entries and exits.Which one is a better method? That’s an endless debate.
Feel free to share your views, strategies and ideas about SAR trading below.
Good luck.
Related Post
How do I calculate SAR ?
How to use the market calls table
Opinion and Answers about SAR and Trading.
SAR (Stop and Reverse) Trading seem to be quite popular these days with traders. This is an "always in the market" strategy.
Traders believe that if they stay always in the market they will be more profitable. However there is a popular market maxim that "Standing aside is a position"
Without getting into the debate about which is a right or wrong strategy, let’s check this recent trade in ICICI Bank futures that got stopped out yesterday.
In the chart given above we can see two trades i.e. a short trade that concluded yesterday (From here on referred as trade A), and a long trade that started yesterday (From here on referred as trade B)
Check out the range (recent top compared with SAR level, marked with red horizontal lines in the chart) that was broken when the respective stops were taken out.
In Trade A range was approximately 31 points when stop was taken out, a system short was initiated.
In Trade B range was approximately 55 points when stop was taken out, a system long was initiated.
Market conditions during both the trades.
Volatility was comparatively less at the time trade A was initiated on the down side hence giving us a tighter stop loss therefore providing a better risk to reward ratio.
Learning from these trades
1) Initiating a trade based on SAR during low volatility period (Trade A) results in better entries thus better overall profitability
2) If one wants to take every SAR trade that a system alerts, she/he should ideally trade with bigger volumes during low volatility period (trade A) than higher volatility period (trade B).Position Sizing Strategy to be implemented as per trends in volatility.
3) During higher volatility periods (Trade B) one should enter a trade on a pull back (Low Risk Entry) or closer to the range extremes than getting caught in the middle part of the range.
System trading versus Discretionary trading?
Both trading methods have their advantages and disadvantages. Traders, who find it difficult to stay disciplined, should use system trading as it eliminates emotions from trading.
While traders with sufficient market experience should prefer discretionary trading as it gives better entries and exits.Which one is a better method? That’s an endless debate.
Feel free to share your views, strategies and ideas about SAR trading below.
Good luck.
Related Post
How do I calculate SAR ?
How to use the market calls table
Opinion and Answers about SAR and Trading.
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