. WHAT IS SAR.?
ANS: SAR is acronym for STOP AND REVERSE.
It is level of nifty/bank nifty (example of stock/Index) used to decide the direction of trade. i.e. long / short.
Hereafter for the sake of example I will refer to nifty only – whereas this SAR system is applicable to any tradable security/index.
Whenever Nifty is trading above SAR than its considered as one should trade long and whenever NIFTY is trading below SAR than one should short nifty.
Our SAR system is only Namesake of PARABOLIC SAR, which was developed by Welles Wilder.
Ours is totally a different approach than PSAR.
2. HOW TO CALCULATE SAR.
Ans:For understanding the calculation of SAR, we have to understand the 5 DMA close of nifty and GUESS the value of 6th day.
For calculation of SAR only excel sheet is used. With calculations of closing values of nifty and average of last 5 day closing values.
# As shown in above screen shot there is only four main columns used for SAR.
First column is of DATE, second for CLOSE , third is AVERAGE / MA of last 5 days and fourth is SAR.
I don’t think its important to explain 1 & 2 columns, so I will rush to 3rd column.
It’s a simple average value of last 5 closes. I.e. for 2nd march 5 sma stands at 4906, which is nothing but average of previous 4 day plus close of 2nd march.
Now, this column of 5 DMA is programmed in such a way that whenever closing of any particular day is coming above its 5day average than it will be in green color which indicates to go long and whenever color is red, we have to go short below SAR value.
Now, if Long trade is going on than we have to calculate closing value which will make the 5dma red and if we are having short trade going on than we have to guess the value which will make the 5dma green.
For calculating SAR for any particular day in advance we have to put the value of close in advance for that particular day.
As shown in above screen shot, if we have to calculate the value of SAR for 4th march 2010 than first of all we have to copy n paste the formula of 3rd column, or pick and stretch down it. Currently 5dma is in green, means we have long trade going on. [ignore the red cell- which is because the closing value in 2nd column is not entered]
Now, if we add 5100 as imaginary closing value than – as the long trade is going on – we will have again green cell in 5dma but we want to calculate SAR for long trade so it must be the value which will make the 5dma cell RED.
Now , again if we enter 5000 as close than also we are having a green cell., so guess another value.
Cell remains green if we enter 4990. 4980. but…..
Now, as per screen shot above if we enter close as 4970 than we are getting 5dma value in red.
It means if nifty closes below 4970 than trend will change and we will cover our longs and go short.
So , SAR for 4th march will be 4970.
Now we have REAL closing value of nifty for 4th march, i.e. 5080. And we will repeat the same procedure for calculating SAR for 5th march
After entering various nearby values to 4970 (i.e. previous SAR) we get 5020 as SAR – the color changer value for 3rd colomn.