In a way, that's one of SAR's strong points -- that the SAR dot is far away like that. The dot is where the old high or low was, and the theory is that you're OK as long as the high or low isn't broken through. Ole man Wilder calls this point the SIP, or significant point.
For example, SAR gave a sell signal with the Dow today. SAR is now at 9598. That's the high from 10/26. So the theory is that even if there is a rally, the downtrend is intact and your short is OK as long as the Dow doesn't break through that old high. The old high becomes the stop. (Mind you, if it did break through that stop, you could incur a big loss, so this might not be everyone's idea of a good stop point. I suppose it's better than the stop that a lot of people seem to use, which is no stop at all.)
Wilder said SAR is "an extremely profitable system in a moving market." In a ranging market, it gets whipsawed.
Wilder also says: "In all the years I have spent developing and analyzing technical trading methods, I have yet to see any one system that is consistently profitable in all markets."
He's no fool, that Wilder.
SAR stands for Sell and Run, btw, in bear markets. OK, maybe not -- I made that up. SAR stands for Stop and Reverse. |
