The Parabolic is a great trend following indicator. The anticipated
1980-like bull run on gold is a great setup for using the Parabolic. In
particular, Parabolic using 30m data seems like a good match with the
recent price action. See the figure below of today's GCG8 chart.
However, the Archilles' heel with using Parabolic is the fact that it's
a trend follower. During the periods when the price goes nowhere and
fizzle up and down, the indicator would trigger frequent buy/short
signals. See figure below, notice the flip flop to the right of the
This sideway action as illustrated in the image would be a killer for my
proposed Parabolic-30m trading system. The commissions would have eat at
my account. Lucky that I'm not in the market at the moment because my
brokerage account at optionsXpress isn't ready.
Obviously, something needs to be done. On a stroke of brilliance, notice
that flip flops of a price can be smoothed out if we zoom out to a
longer time frame for the bar chart. So switching to a 60m Parabolic,
the same data looks like this.
This can save a few unnecessary trades, but still not much can be done
if the price doesn't move. This will ultimately be a losing scenario
nonetheless because of the lack of price action.
After studying the last 10 day price action of GCG8, here's my current
pseudo-code for my Parabolic30/60 trading system.
1)buy/short on Parabolic 30m triggers 2)if previous leg max and min
within range of the leg before that, then 1.verify prev leg with
parabolic 60m. if same, hold; if diff, exit and wait out. 2.switch back
to Parabolic 30m when exited and both in sync, a.otherwise, wait for 30m
to catch up
Trailing stop, 63% of profit (for sudden spikes) Stop, avg 30min bar
range of last 5 hours
Idea to test: Use Parabolic 5min as entry/exit points indicator
There are a few more details that I won't go into in this post because
of time constrain. I also don't intent on publicizing this blog, so I'll
just leave this post unfinished like this.