PARABOLIC TREND
The development and application of this trend analysis technique to modern markets is included in SNAPSHOT TRADING and TREND TRADING. This is a curved trend line. The shape of the curve is a proprietary calculation. It is not an arc, exponential, elliptical or mathematically ‘correct’ parabolic calculation. Use the GTE parabolic tool in the GuppyTraders Essentials Toolbox to draw this trend.
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APPLICATION
This pattern was observed in the market over 50 years ago and was misnamed a parabolic trend. It was comparatively rare. Now it has become a frequent pattern. This is used to define fast moving trend acceleration. These fast moves are unsustainable and prone to rapid collapse. A characteristic of these trends is the rapid collapse when prices move to the right of the trend line. This trend line has a defined end date. These trends occur in all types of stocks. These trends may be an additional development in an existing trend.
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TACTICS
During the middle of the trend development, exit on a close below the trend line
As the trend approaches the end date, exit on any intraday move below the trend line
Exit on the day prior to the inevitable move to the right of the trend line
Use the value of the trend line as a stop loss. This changes every day.
RULES
This pattern is traded without reference to any other indicator. It is a stand alone indicator.
Moves to the right of the trend line signal an exit
Curve must hit at least 2, but preferably 3 initial low points to start the trend line plot. Once plotted on these three points, the position of the curve does not change
The curve starts from a ‘best fit’ point and not necessarily at the start of trend.
When the curve moves towards vertical it sets the day on which the next price bar will inevitably move to the right of the trend line.
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ADVANTAGES
Captures fast moves.
Identifies accelerating trends
Sets an exact day of exit
Most effectively used with price or derivative leverage
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DISADVANTAGES
Trends often collapse rapidly
Difficult to identify this type of trend in the early stages of trend development