6th June, 2001
SAR (Stop and Reverse) should be used sparingly, only once in a while, when the conditions require it to be used. SAR should NOT be used habitually or even most of the times.
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The Colour of Money - Series on Forex Hedging
Current Issue :: Archives
Never 0, never 100, and not in one go!
10th April, 2012
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If your Stop Loss gets hit, it usually means that the market
will go against you for some time and for some distance before moving back in your direction again. As
such, most of the times, your outlook should be to
re-instate your original trade in the original direction,
NOT to reverse the direction.
For instance, say you bought Euro at 0.8480 and kept a Stop
Loss at 0.8440. After the Stop is hit, the market may
decline to 0.8420 only, before moving up again. As such, you
would want to try and buy Euro again at 0.8420. If, instead
you took a SAR, you would be stuck with a Euro Short at
0.8440 and would (in all probability) not have been able to
take profit at 0.8420.
Having said that, sometimes, note Sometimes an SAR
can pay good dividends. But, the conditions should be right
for that....there should not be any ambiguity in the
analysis and there should be good potential for a large
enough move in the opposite direction to make the exercise
worthwhile.
PLEASE NOTE that in the Evening Edition of "FX Thoughts for the Day" today, we have Stopped out of our Cable Long at
1.4035 and have gone Short at the same level. This is an
SAR. The rationale behind this trade is that the chances of
an upmove to 1.43 have been negated and the chances of a
downmove to 1.3900-1.3850 have increased tremendously. As
such, the SAR becomes justified. Also, there is enough room
on the downside to make the trade worthwhile. Review note. The short at 1.4035 saw profit at 1.3875 on 7th June, 01.s
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