Trading in the markets has been quite tough recently. I have been observing that we are getting too many V-shaped recoveries and falls. The volatility is huge and the swings are just too quick to catch.
Today a Bank Nifty long trade got stopped out and now we are short in bank nifty futures. Check out the chart below and some observations regarding SAR trades.
Bank nifty futures long trade, was triggered on the budget day, at point “B” (10701) on the chart.
It was around 485 points from recent low; point “A” (10216) on Chart. Was the SAR too far from the point “A”? On the hindsight, one can say yes, but I would like to say that market was very volatile therefore that was the appropriate level to keep a SAR trade.
Let’s come to the second trade. Long trade that was initiated at point “B” was stopped out today at point “D” (10700). Calculating the range from recent high point “C” (11155), it is again 455 points stop.
SAR and Volatility
I have previously discussed the relationship between SAR and volatility in the post “Should you take all the SAR trades?” Do check that post for some strategies that you can apply when you take your next SAR trade. Volatility will result in bad entries for the SAR trade that needs to be compensated with better exits.One needs to book partial profits as the trade progresses.Entering a trade on the first pullback results in better entry than SAR in volatile market conditions.
Two scenarios that can lead to a better performance of SAR Trades.
Coming back to the main topic of this post, following two conditions will result in overall better performance of SAR trades:
1) SAR trades, should last for a large price movement, for example the January short SAR trade in nifty gave around 630 points. That trend lasted for more than a month same is happening in gold and crude trade currently.
2)Second condition is that when a SAR is breached, there should be low volatility prevailing. Top and bottom formation should be a gradual process rather than a V- shaped recovery or a fall. Unlike the above chart.
Three possible trade setup keeping above two conditions in mind.
1) Find a SAR trade when a stock has seen a long period of sideways movement and is about to breakout.
2) Try to work on a narrow range seven strategy.
3) You should strive to catch a news release breakout example current crude oil trade.
Can you think of more technical setups? Please do contribute in the comments section below.
Trend following and SAR
SAR is a trend following/breakout strategy. One of the basic characteristic of a trend following system/ technique is that you will never be able to catch the absolute top or bottom. Therefore in a SAR trade it is very important that we choose a trade or a trend which has a better probability of a larger move with respect to our time-frame. Trading a corrective move based on SAR will often lead to a low profitable/losing trade.
Finally to conclude, I would like to use the most over used statement that we see in the trading blogs:
“ It’s always easier said than done” :-)
Do share your thoughts and opinions below in the comments section.
Related Post
Should you take all the SAR trades?
Opinion and Answers about SAR and Trading.
Today a Bank Nifty long trade got stopped out and now we are short in bank nifty futures. Check out the chart below and some observations regarding SAR trades.
It was around 485 points from recent low; point “A” (10216) on Chart. Was the SAR too far from the point “A”? On the hindsight, one can say yes, but I would like to say that market was very volatile therefore that was the appropriate level to keep a SAR trade.
Let’s come to the second trade. Long trade that was initiated at point “B” was stopped out today at point “D” (10700). Calculating the range from recent high point “C” (11155), it is again 455 points stop.
SAR and Volatility
I have previously discussed the relationship between SAR and volatility in the post “Should you take all the SAR trades?” Do check that post for some strategies that you can apply when you take your next SAR trade. Volatility will result in bad entries for the SAR trade that needs to be compensated with better exits.One needs to book partial profits as the trade progresses.Entering a trade on the first pullback results in better entry than SAR in volatile market conditions.
Two scenarios that can lead to a better performance of SAR Trades.
Coming back to the main topic of this post, following two conditions will result in overall better performance of SAR trades:
1) SAR trades, should last for a large price movement, for example the January short SAR trade in nifty gave around 630 points. That trend lasted for more than a month same is happening in gold and crude trade currently.
2)Second condition is that when a SAR is breached, there should be low volatility prevailing. Top and bottom formation should be a gradual process rather than a V- shaped recovery or a fall. Unlike the above chart.
Three possible trade setup keeping above two conditions in mind.
1) Find a SAR trade when a stock has seen a long period of sideways movement and is about to breakout.
2) Try to work on a narrow range seven strategy.
3) You should strive to catch a news release breakout example current crude oil trade.
Can you think of more technical setups? Please do contribute in the comments section below.
Trend following and SAR
SAR is a trend following/breakout strategy. One of the basic characteristic of a trend following system/ technique is that you will never be able to catch the absolute top or bottom. Therefore in a SAR trade it is very important that we choose a trade or a trend which has a better probability of a larger move with respect to our time-frame. Trading a corrective move based on SAR will often lead to a low profitable/losing trade.
Finally to conclude, I would like to use the most over used statement that we see in the trading blogs:
“ It’s always easier said than done” :-)
Do share your thoughts and opinions below in the comments section.
Related Post
Should you take all the SAR trades?
Opinion and Answers about SAR and Trading.
hi
ReplyDeletenicely explained..
I cant contribute much but I was noticing that the markets are having swifter (600 sensex) rallies than swifter falls.. Like todays.. No panic at all while going down... The panic comes in going up!
Maybe I am wrong...
@Shazia
ReplyDeleteThanks, I read the review of "7 Khoon Maaf" on your blog that was very well written.You helped me save some INR, which I happily gave to my broker!
Good morning,
ReplyDeleteAnuj & all friends.
Hi Anuj,Good morning,
ReplyDeleteShorted BANK NFTY @ 10918.
Good morning all
ReplyDeletehello sir, i am mohan, i am in new stock market, i read your blog and how to calculate SAR? post, i didnot understand SAR level calculate, plz explain, some example datas and any excel calculater in SAR pattern plz could link sir, my email mohan8456@gmail.com
ReplyDeletehey, my review was my reaction, I never meant to be judgemental. The movie was overall not so bad, but it had scope for improvement..
ReplyDeleteI am yet to identify my self as to what kind of movie buff am i, for all I know, I could be a critic!
Anyways, thanks for the visit.. Do come again :)
@ Anuj,
ReplyDeleteGood afternoon,
Its very good explained.
Thanks.
@mohan
ReplyDeleteSAR (Stop and reverse) consists of two orders fist a stop loss and then initiating a new trade in new trend direction.
Stop loss level is nothing but finding a point beyond which you say "that my analysis has been proven wrong by the market and I need to be out of my trade"
Once the stop level is hit, you enter a new trade in the new direction at the stop level. It is "always in the market strategy".This strategy has its own share of pros and cons.
There are many ways you can decide on a stop.
Just for example an intra-day trade might have a 20 point stop in Nifty, Swing trader might have a 50 point stop and positional might have a 150 points stop.
You will need to first decide which time frame you want to trade and depending on the volatility of stock/index you can choose a stop loss.
I will try to write some more posts and will update them under "Important Post" link on the home page, over the period of time.There is ample of study material which is available on the internet for free. You can search and read regarding stop loss placement strategies. :)
hi anuj,
ReplyDeletevery nice post. actually jnsar/moving average sar/psar are mechanical calculation. now if we want to see whether position sizing/incorporation or atr/oscillators we can backtest. even pulbacks (as long as they are mechanical ) can be backtested. however in ur case where discretionary sar is used i dont know as i have never traded it.
ilango sir has tweaked jnsar trading methodology a bit there we do some intra management of trades. u too can try that. it prevents touch and go disasters. i also feel that instead of sar on daily charts moving average crossover on hourly charts will give better trades. yet to explore it.
@Sharda Saheb!
ReplyDeleteNice to see your comment and thoughts
As "Potter paji" aka Dinesh Rishi, always says "Price Bhujaye Pyass baki sab...."
Averages will always give average results
Try any moving average crossover parameter in any time-frame it will give whipsaws.
As we decrease our time-frame our stop loss and targets will decrease while cost (brokerage) will increase.Whereas, when we increase our time frame our stop loss and target increases while our cost decreases.It can easily be verified by comparing our intra-day day trades with positional trades, based on same system from our trade journal.
There is a proportionate increase/decrease of stop and target with increase/decrease of time-frame, keeping "other things" constant.
Hello sir,
ReplyDeleteFor meta stock Indicator SAR Setup is STEP 0.02 and MAXIMUM 0.2 setup is enough or give me the correct value
vetri2004@gmail.com
Hi Vetri,
DeleteThis way of SAR trading is different from Parabolic SAR of Welles Wilder.
While Parabolic SAR is formula based. This is based on analyzing price structure on a chart based on trader's discretion.
Thank you sir, For easiest way to find the trend in intraday for Call & put options
ReplyDelete