As your dog begins to lower his haunches into the sit position, say "Fido Sit."  When your dog is sitting give him the treat with a big, "Good Boy!"  Repeat this a few times until the dog starts sitting as soon as he sees the treat.

Next stand upright in front of your dog and hold the treat about waist high and near your body so he can see it.  Instead of moving the treat over the dog's head just hold it steady and say, "Fido, sit."  When your dog sits praise lavishly and reward him with the treat. 

If your dog seems distracted or confused simply go back to passing the treat over his dog head a few more times and try again later.  Most dogs pick this up almost immediately.

Now that your dog understands what the word sit means it's time to teach him how to hold this position while you are walking around him. 

Ask your dog to sit and then say, "Stay," as you place the palm of your hand directly in front of his nose.  Now take a few steps to each side of your dog staying very close to him.  It is natural for the dog to want to follow you at first so when he does calmly return him back into a sit position and continue.

Try to remember not to repeat the words sit and stay.  Just reposition him and continue moving side to side.  Then say, "release" or "OK," and reward lavishly with praise and a treat. 

Gradually increase the steps you take until you can walk completely around your dog without him moving.  However, don't try to walk all the way around your dog the very first try.  Take a few steps at a time and build your dog's tolerance to remaining in the sit position while you move. 

As your dog becomes more proficient in remaining still while you walk around, you can gradually increase the distance until you can walk completely around him at the end of the leash.

After every exercise, praise your dog profusely.  Let him know that he has done something wonderful. 

Keep your sessions short.  Several 10 to 15 minute sessions a day are far more effective than one 30 minute session.  Practice in different areas of your home and yard and while on walks or visits to friends and parks.  The more places you work your dog, called proofing, the more reliable your dog will become.