The first entry point on the buy side is considered when the most recent high price has been broken and it is then that the SAR will switch to under the most recent low price.
As the price rises the dots will rise as well, first slowly and then picking up speed and accelerating with the trend. This is the acceleration factor. The SAR level starts to move a little faster as the trend develops and the dots soon catch up to the price action.
Presuming there is an uptrend, the dots (SAR Level) will be below price. As time goes on the distance between the price and the SAR level will decrease, until eventually the market will pullback and touch the SAR level. When this happens the SAR Level (dots) w ill move to above the price.
The main drawback to this indicator is that al though it works extremely well in markets with a dominant trend, it fails miserably in horizontal or choppy markets.
Another downside is that when price does not develop consistent trends, it creates a jerky SAR which makes it difficult to enter and exit.
The following example illustrates the above characteristics?
It is beyond this lesson to give the exact calculation of the acceleration factor and it is not really necessary to know the formula as most charting services now incorporate the system in their indicator range.
My Use of SAR
So far so good. The indicator is simple to trade and is very visual so it's easy to know when you should be short or long. If the SAR points (dots) are above the market you should be short and if they are below the market you should be long.
Here's the problem as I mentioned before, as a stand alone method it does not perform well.
Now you may be asking, if there is so much whips aw and the method isn't reliable, why mention the indicator at all? Good question and here are two reasons I still like to look at the indicator.
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