The Power of Parabolic Play: Trading The Momentum

The Power of Parabolic Play: Trading The Momentum

 

 

Trading must be hard! Is that what is on your mind? Do you have difficulty finding profitable stocks? Do you have problem executing your entry and exit level? If all the answers are yes, then reading this blog is not an accident. This is really for you!

 

The following parts of this article will teach you how to trade using Parabolic Play which I’ve been experimenting, back-testing and improving for couple of years. My goal even before was to find a trading system that is easy to understand and at the same time effective for others to duplicate.With my years of experience in trading stocks, I’m confident that this will work for YOU too…

 

I’m a momentum trader and I’m a big fan of an uptrend stocks. I fully believe that the best performance in trades are found in stocks that are bullish. Trading the uptrend and on momentum is going along with the flow. The trend is not only your friend, it is your best friend!

 

 

What is Parabolic Play?

 

According to Newton’s Law of inertia  “An object in motion will stay in similar motion in the same straight line unless another force is acted upon it”.  Meaning, if the uptrend is valid, the stock would continue to go up to an extended period of time. It has caught my attention and since then I’ve been trading them using my strategy that I crafted. 

 

 

 

Picking Tradable Stocks

 

Choosing a tradable stock is very easy nowadays with the aid of automation. I’ve been using the user-friendly investagrams screener. I would recommend it to you to use this as well since it is available online and free. What I usually do to come up with daily results, I will just select values on “price above average” of MA 200, MA 100, MA 50

 

Meaning, since these stocks are above these significant Moving Average levels, they are on clear uptrend and having bullish momentum. Once you already have the results, you will now filter them on your chart.

 

Momentum Trading Screener

 

 

Here you have the results that are ready for an analysis on your chart:

 

Trading Screener

 

 

Note: Since the result of the screener is based on the closing price of the trading day, to get the real-time price action and breakout on the first parabolic dot, you can just observe the stocks on top gainers or with high trading volume. I usually do it the first 2 hours on the opening to eye my watchlist.

 

 

Personalizing your chart

 

Personalizing your chart is the hardest part, but you will only do it once. When it is already set-up, You can save it and it will stay there forever. Once you have your chart opened, find the “insert indicator” to pull-up Parabolic SAR, we are going to use this as our main indicator.  Parabolic Support and Reverse is widely-used among traders because it is very easy to use. Can you imagine it was used in trading even before the age of the computers?

 

The same person who created Relative Strength Index (RSI) was the one who also created this fantastic indicator. It will give you exact signal when to buy and when to sell your stock in a timely manner. It works best on stocks that are trending with couple of help from other indicators which will be discussed later. 

 

Trading Chart

 

 

Change the settings so that it would be easy to understand, recognizable and readable. It should look like this:

 

investagrams Trading chart

 

 

Same thing to do with other indicators, you can use Ichimoku Cloud from the drop-down and you need to personalize it. On the setting, you need to remove the other parts of Ichimoku and keep Tenkan-Sen for the Trailing Stop and the Kumo cloud to locate the significant support or resistance area. Disregard other parts since you are not going to use them anymore in this set-up.

 

Parabolic Trading

 

 

The last indicator that we need is the Directional Movement Index (DMI). It is composed with three main parts: Average Directional index (ADX), +Directional index (+DI) and -Directional index (-DI). It looks complicated, but sooner than later, this will become your favorite.

 

I would suggest you do it the same way I did to my setting. I changed the color as well so that it would not be confusing for me to spot them and analyze.

 

DMI Trading

 

 

Once all the changes are made and applied, it should  look like exactly on my chart is showing:

 

Momentum Trading

 

If you have this, then congratulation, you’re ready to go! You can already execute your very first trade using our strategy, but don’t not ever forget to save it. 

 

 

Position Trading

 

Position trading is a strategy for longer timeframe. Usually it takes weeks, months and can take up a year or more. This works best for people who are having a full-time job but still want to trade on their vacant time. On our set-up here, what you need is the Parabolic SAR, Ichimoku Kumo cloud and DMI.

 

 

When to Buy:

 

1.When the first Parabolic dot is below the candle with a “breakout” on the upper dot from the previous candle. 

2.When the candle is above the Kumo cloud or at least when it is breaking-out from the cloud.

3. When ADX is above 30, +Directional Index (blue) is above the -Directional Index (red). It just means that the stock is bullish with a strong momentum.

 

Note: Ideal buying price is on the first Parabolic dot below the candle with a breakout on the upper dot from the previous candle, but if you were not able to catch it, you can buy on the second to third candle.

 

Trading Breakout

 

 

When to Sell:

 

1.When Parabolic dot is above the candle.

2. When ADX is above 30, – Directional index (red) is above +Directional index (blue), this  is considered a strong downtrend,or…

3. When ADX is below 30, +Directional index (red) is above -Directional index (blue), this is considered as ranging. Meaning, the trend is not clear.

 

Selling Breakdown

 

Basing on the chart above, IMI shows the first upper parabolic dot signaling a sell and DMI confirming a range trend. 

 

Note: I usually hold a stock even the upper parabolic dots are showing as long as the DMI is still saying that it is on uptrend. DMI will give us clear confirmation on the trend for us to avoid whipsaws (wrong signal). 

 

 

 

SWING TRADING

 

 

When to Buy:

 

1.When the first Parabolic dot is below the candle with a breakout on the upper dot from the previous candle. 

2.When the candle is above the Kumo cloud or when it is breaking-out the cloud.

3. When ADX is above 30, +Directional Index (blue) is above the -Directional Index (red). It just means that the stock is bullish with a strong momentum.

 

Note: If you have observed, buying pattern is similar to position trading which is discussed above. However, for selling, I used different methods, depending upon the scenario of the stocks I’m trading. 

 

 

 

When to Sell:

 

 

Using Tenkan-Sen

 

You can use Tenkan-Sen line in Ichimoku as a Trailing stop.  It is similar to a short-term moving average that follows the price action. A good way to monitor a trade to know that it is time to take a profit.

 

I personally like this especially if the stock is moving-up slowly, I would immediately know if it is already time to sell or just hold a bit with just one glance. On this chart, I held the stock when it stays above the Tenkan-Sen (blue line). Once the momentum diminished and the candle breaches Tenkan-Sen, I pushed the sell button.

 

 

IDC Trading

 

 

 

Per Candle Trailing Stop

 

I use per candle Trailing stop once the stock I am trading is very volatile or when it is not moving normally. Penny stocks can move 10% or more in a day or the other way around. To always secure my profit, I’ll plot my Trailing stop on every closing price of the candle.

 

When it moves up the next day, I will adjust my Trailing stop to the next candle, so on and so forth… 

 

Candlestick Trading

 

 

 

Using Fibonacci 

 

Using the chart shown below, the buying price using Parabolic Play strategy is above 0.618 Fib, but it keeps on breaking upper Fib levels on the same day. As long as it will keep on moving up, let it happen and adjust the Trailing stop on the next Fib level.

 

As you can see,  it even closes on 1 Fib making it as its good support and it stays there for many days. However, it seemed not moving-up any longer. Once the candle breaches below 93.22, I sold this stock that day and secured a profit. 

 

Fibonacci Trading

 

 

 

 

Do you still want to know more about this trading strategy? Join my webinar for FREE and I will explain everything there in details. Click here.

 

 

DO YOU WANT TO LEARN TECHNICAL ANALYSIS? FUNDAMENTAL ANALYSIS? CANDLESTICKS AND CHART? 

 

 

Book me a one to one session and let me personally coach you: text me 09369280089 or send me an email palengkekid@gmail.com

 

 

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