The Art & Science of Technical Analysis: Market Structure, Price Action & Trading Strategies (Wiley Trading) by Adam Grimes

Author:Adam Grimes [Grimes, Adam]
Language: eng
Format: epub, mobi
Publisher: Wiley
Published: 2012-05-30T23:00:00+00:00

Figure 8.2 The Parabolic System Applied to Oat Futures

Though it is difficult to trade the Parabolic as a stand-alone system in the always-in context that was originally intended, it can be an extremely useful tool for discretionary traders who can turn to the Parabolic for trailing stop levels in trending markets. It is possible to initiate a position, take your first partial profit (if that is in your trading plan), and then use the Parabolic’s levels as trailing stops. When the stop level is hit, exit the position but do not flip. The usual caveat applies: it is a mistake to use any trading tool that you do not completely understand. If you are going to use the Parabolic, do whatever you need to internalize its calculations. If calculating it by hand or in a spreadsheet helps, do so. I would highly recommend some kind of test environment where you can apply it to artificial data series you create (see Chapter 7) so that you can see how it reacts to every imaginable market situation.

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