How do you trade a parabola move?

Discussion in 'Technical Analysis' started by thecalip, Mar 20, 2008.

  1. Yesterday, the Taiwan Index futures rally 12 points in about 3 hours. From 311 to 323. During this rally, there is almost no down bar on a 5 minutes chart. The momentums start around 11:30 index was 313, and in less than 2 hours, index at 323.

    It is one of the greatest move in this index, unfortunately, I was not on it. I just stare at it and wait for a pull back which never came.:mad:

    For all the experts out there, how would you trade it? Where are the safe entries? Or there is no safe entry after the move begun.

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  2. <i>"For all the experts out there, how would you trade it?"</i>

    Use the 5min chart as your filter / trade chart and use a tick chart for precision entries in harmony with 5min chart bias.

    Experiment with various tick (or volume) settings to see which works best in that index for you. For sure there were numerous trade entry signals in that move on a chart which measures price movement and not time on a clock.
  3. you don't unless you are a momentum trader by default case in which if you stick to your trade long enough, you get most of the move.... however momentum traders get whipsawed a lot.

    when the move is unfolding you never know when it's going to top out so buying at the top seems a bit stupid... next thing you know the move is over and huge....
  4. The question for you is not how to trade a parabola, but rather how to read price action. If you can't read the PA signals on that chart then you'l still miss many signals using different styles/timeframes of charts irrespective of the shape or intensity of the move.

    When you look at this 5 min chart you should have a good idea how it will look in a lower timeframe and a higher timeframe and where the continuation "get in" signals are.

    The bottom reversal comes after a high quality fluid move down - no overlapping candle bodies. Buy over the high of the 1st green candle.

    However there is a sideways consolidation before that break up. Visualise that on a bigger timeframe. One or two big candles down and a single green Harami (pregnant) candle. This is an easy trade - a break of the low is a continuation signal and a break above is a reversal.

    At around 313 we hit the blue average and there's a small pullback. This would be much bigger in a 1 minute or a tick/volume/range chart and allow an entry - provided you have identified that a trend is evolving with higher lows and higher highs on the 5 min chart.

    All of those red candles and reverse wicks were screaming in a lower chart setting - but as I said you must be able to read the many signals on this 5 min chart.

    Breaking thru your averages suggests strength and the break of the prior high with the support of crossing averages tells you strength is increasing. That breakout was a screaming strong signal.

    The red candle at 316 is a high quality reversal/continuation signal. Short below, buy above - another screamer signal. On a lower timeframe it bounces off the exact prior high.

    There's a similar continuation signal at 317 and again 319.

    At 323 it's the same pattern with a short signalled. Drawing tendlines on the parabola gives 3 trendlines increasing in steepness telling you it's usually the last leg up and PA is far away from the brown average and these two will have to close the gap.

    If you can't see these signals then going to a lower timeframe won't be as profitable as it could be. Learn these and use a larger and lower timeframe and different types of charts like tick, volume and range to see what you can identify.

    I can't see the PA on your top left channel but if you project the top channel forward it supports the bottom at 319 - this is very common if there is good structure to the channel.

    Also your long candle 314-309 has a mid point support where everything takes off from. You got a lot of homework to do - new timeframes, chart styles and PA study.
  5. @Yoohoo

    What you wrote make sense on historical chart. I could say the same too if someone show me a chart. However, would you have pull the trigger if it is live? I want something that has high probability of winning.
  6. eagle


    Actually, it's so easy to trade the parabolic curve. The problem is that we can only know once the parabola is formed, too late (sad). The question is that how to spot, in advance, that it's going to be a parabola? Kidding right.

    Some sort of indication, as long as we are not completely convinced the upward movement continue, it does continue moving upward. And once we are totally convinced that it will continue moving upward then it was the end of the trend because somehow others traders feel the same way!!!!! We are human and it's normal we share similar feeling. So have the courage to enter the trade when we aren't completely convinced ourselves that it will be a good trade.
  7. thecalip, are you now saying you saw all that but didn't have the discipline to take the trade and you're still looking for a higher probability set up?

    I mentioned that these are high quality, fluid, price action set ups. Deosn't matter if it's a pattern breakout, a candle breakout, a range breakout etc, you have to begin to take the trades.

    See the set up, draw the line, place the order in your dom and set the stop. Now you dan't have to take the trade - you did the analysis - let the computer place the trade.

    These set ups are as old as the hills - they just work
  8. I spotted the whole move and I suspected it will be a parabola move after it pass 316 (BO? increase vol), just don't know when it going to end. My general rule is buy when it has a two (2) or more lower high. It didn't happened until 12:50. I missed that move because I was summited by my wife and I missed the whole move. :mad:
  9. Wasted my time here. If you saw and understood all I said but prefer to wait on 2 LH's as a stronger signal, you're sure gonna spend a lot of time watching big moves pass you by. and you won't be able to trade chop or spikes. There's not much left!

    A move ends when it ends and you exit on the sell signal. If you think it's run too far, it is certain you'll miss the big ones.

    It's fun to guess the future, pattern completions and project targets - just don't trade your guesses or let it sideline you unless you have a stunning track record of correct prediction. If you have - take Cramer's TV slot.

    On second thoughts, you'll not need stunning performance to take his slot.
  10. I annotated your P, V chart. I only added some talking points because of where you are in trading. It is best to take things one step at a time.

    1. The day starts long (see channel defining points as three blobs of yellow.

    2. Use volume to determine that the day is long. See the two pink annotations (lines) Where volume is INCREASING to tell you a dominant (tending traverse) is under way; see the long annotation on price.

    3. You use the P, V relationship to make money as the day progresses. You are making mistakes in drawing at the point I have drawn the vertical light green line.

    Think about the following:

    you need to always use the three blobs to define the channel. Two are on one side and the other is between them in time and on the other side. You are not being sure that the middle blob is between the first and last blob.

    Since you have not reached the point of being able to draw channels correctly, you will continue to "freeze" during trading hours. You explained how you "freeze"; this is your physiological system telling you that you need to protect yourself since you do not know what you are doing mentally. this is quite common to see in ET. Read the allenhobbs journal and see how bad freezing can get and how much denial can come into the picture for someone.

    I wrote up the "fix" for your drawing of channels. If you choose to proceed with this improvement you will begin to feel more comfortable since price will always be in the channel AND as you showed, the channels will overlap when one is ending and the other is beginning.

    4. Lets deal with parabolas. they are fun and sometimes they do exceed, in power laws terms, the Naperian base exponentially speaking. this is a statement of the market "decoupling" from the participant's participation temporarily. That is "market externalities" have come into play. In the US the president's working committee achieves this status occasionally. Google the chairman (Paulson) to see the frequency of his communicating when he is in one of these spasms of creating externalities.

    To deal with parabolas you use your channel charting annotations. I drew two pink lines that tell you the market is short and I did not do a fix on your mistaken channle because I want to keep you focussed on making money by using principles and not focused on learning to annotate.

    5. You see in the short channel a retrace to the RTL. During this you are headed towards the RTL and volume is going to a MINIMUM. Here and now focus on finding MINIMUMS on retraces because at the time of this small volume, the traders have reached a disagreement on price. You will see the spread (not shown on your post) increases at this time in this market. you are collecting three items at this point: price retrace, volume minimum and increased spread. You are going to make money from this.

    At this time you have been getting into your "freeze" state for about 11 bars. That is quite a while and a severe trading handicap. So lets convert this to an excellent type of trading instead.

    If you are in a channel (you always are) you always have the right to trade its traverses. So start doing that with the help of volume. peak volumes mark the end of price movement to the LTL. Volume troughs mark the end of price movement to the RTL. It is certain that after a peak in volume a retrace will occur.

    On the other hand there are two choices at the end of the trough. For an expert trader, there is no problem. For others, they have to be alert and think and observe. You know know this and you know WHEN this moment is at hand. And if you are doing as I suggest you are long and making money. this circumstance is the opposite of the "freezing" that you have been doing. It is a nice place to emerge into by making a few forwarding and important decisions all within your power.

    6. as the moment passes, you observe that the minimum has past and you are in an increasing volume situation. This tells you what side of the market to be on by looking at the color of the volume bar (green). Green stands for long on your chart and you are already long. This lasts 21 more bars and you keep making money at a faster and faster rate.

    7. Since you were "frozen" you stopped annotating. I am leaving it blank so you can think about being frozen rather than seeing how to do channels. If you were to draw the channel you would see a volatility expansion of the channel and price moving more and more to the LTL.

    8. On any traverse of a channel on the dominant traverse there is always a possibility of a volatility expansion because MORE volume can come into the market than the increasing volume of prior dominant traverses.

    9. you take the profits on the peaking volume. so to know it is peaking ahead of time you need to do a pro rata volume and know what the end of the bar volume will be.


    If you fix the things mentioned you will become a millionaire just like everyone before you did who fixed the problems. You can choose to skip this post as susanadt did when I suggested the same things to her. Thats life. The only reason I responded to you is that you are being honest with yourself and you only have about three things still to get straight for getting really rich.

    Have a good weekend. Taiwan is a nice place to live.
    #10     Mar 21, 2008