Parabolic 30/60 version 2 needed

Upon further analysis, the Parabolic 30/60 system is deemed unviable in real trading for the following reasons.

  1. 30m lag time creates big drawdown in a volitile market.
  2. Small winnings and big loses frequent because of above.
  3. Sideways action create too many trades that go nowhere. As in the recent price action of GC.

Perhaps it might work upon further refinement based on quantitative analysis. But from looking at the past 9 days of GC price, this method in its current form doesn't seem so good anymore. The main problem is that my account is limited so the big drawdown factor alone would end it.

However, it may be possible to use independent acceleration factor (AF) for the upswing and downswing to better capture the price action. This is because prices typically climb slow and dive like a bomb. A systemic testing is needed to further investigate this method.

Introducing the Parabolic30/60 trading system

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.

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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 chart.

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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.

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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.

[]: http://bp0.blogger.com/_Vlx60iTPx5s/R2mJ6fY4uNI/AAAAAAAAADI/WbGzxuh5rYw/s1600-h/12192007_GCG8_parabolic30.jpg []: http://bp3.blogger.com/_Vlx60iTPx5s/R2mIFPY4uMI/AAAAAAAAADA/SpjK_CYZ04Q/s1600-h/12192007_GCG8.jpg []: http://bp3.blogger.com/_Vlx60iTPx5s/R2mLVPY4uOI/AAAAAAAAADQ/kc3No4fJMfk/s1600-h/12192007_GCG8_60.jpg