Parabolic SAR - that's all!

[tonymand]

[quote=dpaterso;35532]
Disclaimer:

Let's of course always bear in mind that I am the one who suffered tens of thousands of dollars of losses last year so always bear this mind when 'taking my advice' (although, strange as it may sound, if I only took my own advice, I'd be well up by now by the looks of things)!!![/QUOTE]



That of course makes it particularly important to take note of what you say. Nothing like the school of hard knocks for teaching lessons and to survive that and move on is what so many cannot do

[dpaterso]

Good morning everyone!!!

Great day!!!

OK - well - first - thank you Tony - a very nice comment - and much appreciated.

vxdxm (what does that stand for anyway):

As I have said on numerous occasions before: I have absolutely no doubt that Parabolic SAR IN THE LONG RUN I.E. THINK MONTHS AND YEARS will turn a profit and a huge one at that PROVIDING that you have the patience and the capital to suffer the inevitable drawdowns. Why am I not using Parabolic SAR to trade? Simply put I have come to the realisation that trading with Parabolic SAR does not suit my personality. Now I know that this is a very 'cliched' statement that we all (well me anyway) have seen and read about and heard from time to time but we (well again me anyway) choose to ignore the importance of that statement and let me tell you that it's not to be taken lightly. It's like any 'job'. Study or work in a field that really interests you and makes you happy and you will succeed but study something or choose to work in a field that you absolutely loathe and you will eventually fail no matter what the potential rewards for the simple reason that you cannot and will not be able to sustain a high level of dedication and motivation and will eventually either loose interest or just end up doing a bad job. Unfortuanately for me: I KNOW that Parabolic SAR (whether it's plotted correctly or not) will make money in the long term but I am just not one of those people who can wait for days on end for a valid Parabolic SAR signal and then hold onto the position until it's stopped out i.e. I need to trade everyday; I need to have open positions all of the time; I need to 'work' this business on a daily basis. Parabolic SAR does not give me what I need to excel at this business. I would go so far as to say this: if you are the kind of person who has been able to save money in a savings account at a bank then you will be able to 'work' Parabolic SAR; if you're not (and I have NEVER been able to save money for any extended period of time) then Parabolic SAR will drive you 'nuts'. Invariably what will start happening is that you close trades out early, constantly mess with what would have been 'good' trades, and because you're frustrated you will hold on to 'bad' trades because you're now angry that the indicator has let you down and these 'bad' trades will, in the end, finish you off. This business is, more than anything, a 'mind game' and if you cannot get your mind 'around' the 'system' or indicator that you are using it will 'push you over the edge' - no question. As a matter of interest: when Wilder presents Parabolic SAR in his book and shows you chart examples these charts examples cover months and months of trades i.e. one chart covers an entire year of trades. In other words: it appears that trading any timeframe shorter than a day did not even cross his mind.

I am trading all of Wilder's other systems in his book and they are working for me. One of them give me trades every single day, takes (small) profits most of the time (and yes: losses sometimes) every single day; another gives me trades 'just about' every other day; and the other one is longer term (I have not yet had a valid entry point on this one yet but it's coming). They are purely 'technical' in nature and leave absolutely nothing to 'chance', my imagination or interpretation of the market, or any other 'human factor' and all of these factors suit 'who I am'. For the first time in just over a year of trading I am 'at peace' with trading and it's not becuase I'm making small profits i.e. even WITH his systems I have had a few VERY bad (stop) losses BUT the difference is that I no longer get 'angry' with the market because I've been stopped out and then invariably try to 'get back at the market' i.e. I am able to take the losses 'like a man' and carry on with the next trade.

Now for anyone reading the above: this does NOT mean that I am abandoning this thread (or even Parabolic SAR for that matter) i.e. this thread has (for me anyway) become so much more than a thread about an indicator or trading system so I check it and post everyday (especially now that I have my broadband back)!!! I will keep posting as long as there are people here that are interested in what I've got to say (no matter whether they are interested in what I'm doing and what I've learned OR if they're having a 'good ol' 'chuckle' at me). There are 'things' that have been shared on this thread by everyone that you cannot and will not find in a book, a forex course, or anything like that. Aside for the technical ideas that have been shared on this thread, it's the sharing of 'trading pshycology' and 'raw emotion' that is presented in 'hard core' style here.

For the reasons mentioned above I urge anyone new to this thread and new to trading to read the thread and to not just 'jump on the indicator' because it 'seems like' a 'sure fire way to make money' (of course you can skip over all my 'drivel' relating to music and my favourite bands). Trading IS NOT easy money: it's sheer hard work. I firmly believe that had I put this much effort into any other endeavour in my life I would be an extremely wealthy person by now BUT for a very long time I have been making money doing things that I had lost interest in and, as such, ended up doing only what was necessary to sustain my lifestyle i.e. I would never have 'gotten ahead'. Now while that may sound strange given what happened last year and the financial problems that it's caused I am sure 'to my core' that this is what I want to do for a living and I still really and honestly and truly believe that I can indeed 'master the trade' (no matter how long it takes) and that the EVENTUAL rewards, aside from the possibility of them being extremely 'fruitfull', will be more satisfying when achieved than anything else I could have 'turned my attention to'. This 'business' is not to be taken lightly. It WILL make or break you, and, if you don't have an absolute passion for it, it will be your financial downfall. I no longer trade because I'm trying to 'get rich quick' and 'pay bills' (those are so far in arrears now that it's really of no consequence anymore i.e. I will take what comes my way from my creditors). I trade simply because 'I love it'. As I have said before: I have learned more about myself and about the world around me in the last year or so than I have learned in the preceding forty two years of my life and I would not change it for the world. I will continue to trade until I have 'mastered the trade' OR it has cost me every single thing that I have i.e. until I have no resources left to continue trading or until I can finally say that 'I am a trader and that's how I make my living'!!! I believe that this is the commitment needed!!!

My goals (and these are as important as a profit target): to 'master the trade', pay my creditors (eventually - if they're prepared to wait), and build up my capital to the point where I can trade the full size (not futures) Dow, S&P, and Nasdaq because I believe that that's 'the big time'. For now: I'm happy to build my account up dollar by dollar no matter how long it takes!!!

I am always happy to help or share my ideas so don't let this thread die!!!

[vxdxm]

Originally Posted by dpaterso

Good morning everyone!!!

Great day!!!

vxdxm (what does that stand for anyway):

It stands for Vadim, my first name. Thanks for clearing out what you are currently doing. To be honest your threat encouraged me to open a live account and trade, and this is what i am doing at the moment. In some of your posts you were talking about thousands of dollars and in some you were struggling to pay for broadband. And i wanted to know where you went wrong, but you last reply pretty much summarised it all.

[dpaterso]

If can help you by sharing my good and bad experiences then it's pleasure.

I suppose my success and failure last year were due to a number of reasons and it would be hard to pick one single factor that contributed to my situation. Yes - at one stage - I was up BIG TIME (that's pretty much around the time that I started this thread if I remember) but although it was great at the time it 'fooled' me (and others) into thinking that I had found 'the holy grail' of systems and that probably gave me a very false sense of security which then caused me to trade carelessly because I was just 'assuming' that I finally 'had it'. Also - in retrospect - even when I made that money - I can't honestly say that it was a pleasurable experience (although it may have come across as just that at the time) i.e. the way it was made did not suit my 'trading personality' and when I could not replicate my 'windfall' then that was pretty much the 'start of the slide downward'. The market has taught me humility I can tell you that much. Put it this way: every profit I make now (no matter how small) I feel that I have 'actually made' i.e. worked for it and it was NOT pure 'luck' and that makes a world of difference. It allows one 'privilege' to start thinking 'hey - I can make a living out of this business' as opposed to thinking 'I hope my luck lasts'. See the difference?

I wish you all of the good trades in the world (I won't wish you 'luck')!!!

Edit:

Somebody sent me an email saying that they don't understand why I say that Parabolic SAR is 'the 'b' all and end all' of indicators and I'm so sure that it will make money in the long run but yet I don't use it to trade with (right) now. What's the deal?

Let me explain it another way:

Like I said: using Parabolic SAR does not seem to suite my 'trading personality' EVEN IF it will make money in the long run. What happened to me on numerous occasions (after my 'luck' had run out) was that I would open a position, let it run for days, only to find out three or four or five days later that the trade was 'bad' and I ended up making a loss or only a small profit after five days of 'work'. You then start asking yourself 'well what is point if that's all I'm going to make in five days' and this affects you (me) phsychologically i.e. it would then cause me to 'overtrade' and 'chase' the market to try and accelerate my earnings and invariably this would (and eventually finally did) result in a 'wipeout'. It also made me start looking at other indicators and other methods to 'combine' with Parabolic SAR and when THESE trades went wrong it was even worse. I need to know, soon, whether my trade is good or bad i.e. the way I'm trading at the moment I will know within a day or less whether or not a trade is good or bad and if it's bad then I can 'stomach' the loss and move on to the next trade. With Parabolic SAR, when a good trade went bad, it took a long time to recover and was very difficult to stay positive. What all of this says about me as a person - I do not know but, as I have previously stated, Parabolic SAR WILL make money for you IF IT'S RIGHT FOR YOU.

[chirules54]

Whew... I've been reading this thread for the past week off and on and I finally finished reading all 185 pages today. The journey it took was pretty interesting, starting out with the simple parabolic sar, evolving into a more complex system with ema, rsi, macd, and other indicators, and it seems like it has sort of ended up right where it started, that pure parabolic sar can work and that the other indicators didn't help as much as once thought. Dale, I have a few questions and comments about the whole thread now that I have read the entire thing...
they are listed below, I numbered them to make them nice and clear..

1. Many times during the thread, you mention the creator of the parabolic sar, J. Welles Wilder and a book he wrote, New Concepts in Technical Trading Systems. You mentioned that you currently use some of his systems, including one that gives you trades "almost every day". I was just wondering, are these systems you are using in this same book I just mentioned, or a different book?

2. It also seemed that you had more success with pure parabolic sar and other indicators created by Welles in the commodity and stock market indices than with forex.. am I correct? I remember many pages ago you mentioned soybeans and how it behaved very well with psar and how the comms and indices seem to "behave" better than forex when it comes to using psar.

3. Over the course of this thread, several different indicators were used to compliment pure psar, I have looked at many of them on charts and while some of them do seem to filter out some bad whipsaws, they also can keep you out of some good trades if you use them along with psar. ADX, MACD and the 50-day ema were a couple of the ones I looked at especially, did you ever come to a conclusion about which of these, if any, was most successful? Personally I believe that the idea of ADX is great, since it's supposed to keep you out of ranging markets where psar doesn't work well, but as you mentioned earlier in the thread, it didn't seem to work too well with forex.

4. Many times towards the beginning of the thread you talked about being careful with the "commdolls" aud, nzd, cad, and zar. You said it would be best to not take a position in these trades unless the commodity "agreed". I know that aud, nzd and zar are usually correlated with gold and cad with oil.. does a move in the forex pairs usually happen AFTER the commodity has moved one way or the other? This would make sense to me, I just wanted to confirm. Also, I found a good link showing currency correlations, not sure if everyone has seen these charts but they look beneficial to me...



5. I am interested in trading commodities and stock indices as well, do they require more capital to trade than forex? My forex broker is oanda and I can make trades as small as $1 but the only commodities available to trade are gold and silver.

6. Right now on my chart I have the parabolic sar with default settings (0.02, 0.2) 50 ema, and bollinger bands. I have noticed that, like the other indicators, the bands tend to keep you out of a lot of whipsaws if you only follow psar when the dots are outside the other bands, but you do miss out on some good trades when the psar dot stays inside the bands, but still lead into a good trend. I also noticed that the 50 ema does a good job showing major trends, but sometimes, especially in ranging market times, when the price closes alternating above and below the 50 ema several times a week, you can take some bad losses if you enter the trade. However, once the price gets further away (but not too far) from the ema or if the candle has closed above or below it 2 or 3 days in a row, this is a confirmation of a good trend. It does get you in late on many trends though. I believe this was mentioned before, but my idea was to weight the trades, so if macd and psar and the 50 ema all give you a good signal, maybe you can risk more on a trade than if say, just psar gave you a good signal.

Anyway, I think this is a great thread, probably the best I have read on the site and just reading the first 10 or 20 pages made me want to read the rest to get the "full story". I am also going to buy Wilder's book this weekend and give that a good read. While reading through this thread I went through many stages where I added this or that indicator to my chart because it was the new idea, I'm just glad I waited to read the whole thread before jumping on and getting a bunch of trades in . I can only see this idea evolving and getting better, and I would love to contribute in any way possible... So many others have already and it only can improve things the more we have "on board"... Anyway, good luck everyone with your trading and I hope to soon join you all in business (right now I only have $50 in my oanda account and I am just trading 1 cent pips to try some things out so no big profts or losses for me!)

[tonymand]

[quote=dpaterso;35731]The market has taught me humility I can tell you that much.


Another gem Dale. Never forget the market can financially destroy you and you are always just one trade away from self destruction if you lose your discipline or respect for the market. Never turn your back on it!!

[daxm]

Hello all!

I finally think I have a valid point to make! (or a grieve error in my logic to show to the world)

Okay... Here goes:

I'm looking that the USD/CHF monthly and daily charts.(See attached files. I couldn't figure out how to make an image so I just made pdf files.)

The monthly chart has been trending down since Jan 2001. So I mapped my fib from the low in Jan 2001 to the most recent low (which was Dec 2004). It appears there was a strong retracement to the 38.2% line on the fibs which (according to the book I'm reading) means that there is a strong chance that this chart will continue trending down to the 1.67% mark (which is about 0.850) over the next several months/years. (NOTE: The 1.27% mark is almost dead on a 1.0000)

Then (since I'm really watching the daily charts) I mapped the fibs and according to the daily chart the market is still trending downward. It retraced to the 61.8% mark (which still indicates a continuation to the 1.67% mark) BUT this 1.67% mark is about 1.0020. (Which to me is pretty close to the 1.0000 of the 1.27% of the monthly chart.)

So... My intention on this is to trail my Stop Loss at the PSAR dots and have my Limit set to 1.0050 (just above the fib point). Maybe too close???

What do you think?

Additionally since I bought the USD and sold the CHF the interest rate differential is 1.50% so I should see a "reorder" pip discount as my position carries over. (Which would be nice to be able to calculate what that discount really is.) ;-P

[micrapip]

I know this question has been answered here in the 185+ pages...

is it best to manage your account wright after the next day bar is posted?

[dpaterso]

WOW!!! Someone ACTUALLY went to the trouble to READ the WHOLE thread. That DESERVES an answer of note!!!

I'm not going to 'quote' your questions (to save space as I see we are having 'database problems' of late on the site - well I'm getting those error messages anyway) but I will answer them 'by number'.

1 - Yes, all the systems are in the same book i.e. "New Concepts In Technical Trading Systems" by J. Welles Wilder Jnr. I arranged for a discount for babypips.com members so if you email me I will give you the discount code and the link to Mr Wilder's organisation from where it must be purchased if you wish to receive the discount. All you have to do is put the discount code in when you order and they will discount the book for you (they asked me NOT to put to code anywhere so that it was publicly visible so that's why the email 'story'. I promise you faithfully that I get nothing out of the deal and I bought the book a long time before getting in touch with them regarding a discount for babypips.com members. My intention or hope was that more people would buy the book so that we could start some threads here and sort of 'trade together' but nobody has shown any interest until now). Mr (new, free) email address is dpaterso@live.co.za.

2 - In 'the book' (I'll call it that from now on) Wilder starts out with the 'Parabolic Time/Price System' which, of course, includes the calculation and explanation of Parabolic SAR. 'The book' also contains the calculations and explanations of all of his other indicators including RSI and ADX. Wilder himself says to not use Parabolic SAR on it's own but to combine it with ADX for example. Wilder was, in those days, purely a commodities trader and traded things like Soybeans, Pork Bellies, Live Cattle, etc. etc. so all of his indicators (and trading systems) were developed while he was trading these instruments. Now this is not to say that they will NOT work on forex pairs BUT I have spent a whole lot of time analysing these things and I can tell you that things like Soybeans and Coffee and Sugar etc. etc. etc. seem to 'obey' 'the rules' FAR better than forex pairs i.e. they don't have the 'violent moves' and seem to trend far better and for far longer and then correct just like they are supposed to and then trend again and so on and so forth. I personally 'love' the Dow, S&P, and Nasdaq BUT of late they have also been moving pretty 'violently' themselves (I know that the correct work is 'volatility' but I prefer the word 'violently'). Soybeans is probably the 'classic' example i.e. if you pull up a chart of Soybeans and then overlay Parabolic SAR you'll see what I mean i.e. none of the 'huge' stops at the beginning of the trend and even when Parabolic SAR gives a 'false' signal on Soybeans the loss is 'recoverable'. I must state that it's not Mr Wilder that says that Parabolic SAR won't work with forex pairs it's just my own observation. I do know that he still trades commodities but trades everything else as well now (although he is now trading using 'The Delta Phenomenon' which I just cannot get 'my head around' and not to mention the costs involved but, maybe one day).

3 - I never came to any worthwhile conclusion with regard to using other indicators to 'validate' Parabolic SAR trades. You'll notice that it was just after my 'windfall' which, ironically, was accomplished by using 'pure' Parabolic SAR, that I started trying to use other indicators to 'validate' Parabolic SAR but I just started losing and losing and this caused me to 'jump around' even more and lose some more so I don't have a definitive answer. As I mentioned previously Wilder himself says to use ADX with Parabolic SAR but, as you 'picked up' it just does not seem to 'cut it' with forex pairs. I did read somewhere else where someone suggested using Parabolic SAR on the daily charts BUT monitoring ADX on the weekly charts (for forex trading) and this seems to have some merit (I have done some analysis but have not traded with this idea).

4 - 'Commdolls' (my 'bugbears')!!! I have not had good experience with 'commdolls' i.e. every time I 'throw them into the mix' I get 'nailed'. This time around (even with Wilder's trading systems) I've tried with them again and even checked that I'm getting the identical signals on Gold as I'm getting on AUD/USD (for example) and then entering the trade and one of them i.e. either Gold or AUD/USD has gone 'sour' for me so I'm now staying away from them (the 'commdolls' not the commodities)!!! To honest, though, once it's happened the first time I've 'walked' away and that's not quite the right thing to do. On all occasions I must admit that I always caught either the 'commdoll' or the commodity just as the 'turn' (or correction) was beginning so it's reasonable to assume that if I 'stuck' with them things would turn out OK. In other words: with the systems I'm trading now (Wilders systems) if Gold is going down and is 'committed' to the downtrend then the system will work perfectly on AUD/USD (for example) as well but when I tried them Gold and Oil were still 'deciding' whether or not a correction was due so even although the systems were giving me identical signals at the time it stands to reason that neither move was 'committed' as yet so one went down and the other continued up slightly and I got stopped out and walked away. I hope that makes sense. From what I can see the move in the forex pair usually comes just after the move in the commodity.

5 - I can only tell you what it costs me to trade the indices and commodities at my brokers. Delta Stock offers Gold, Silver, and Oil and (with the exception of Gold) these can be traded with as little as a dollar or two of margin i.e. 1 lot. A single lot of Gold at the moment can be traded with as little as $9 or so but of course the leverage is much lower on these instruments i.e. not 200:1 more like 100:1 and 50:1 so in order to make any 'real' money you either have to buy 'a whole lot of lots' or hope that they move like crazy. This IS definitely the way to go if you're starting out trading these instruments and I'll explain why I say that later in this paragraph. At Delta Stock you trade the 'full' or 'proper' index NOT the index futures so 1 lot of Dow will cost you anywhere between $600 or $700 per lot, the Nasdaq slightly less, the S&P still less so you need some serious margin to trade them but the 'payoff' is excellent. NOW at GCI you can trade ALL the commodities, metals (including Palladiium, Copper, etc. etc. etc.) as well as most of the world's index futures BUT be warned: a single lot of ANYTHING at GCI is a minimum of $50 per lot and leverage is 200:1 on ALL instruments. This makes a HUGE difference ESPECIALLY if you don't know what you're doing (and needless to say this is where most of any money I used to have has landed up)!!! The difference is HUGE for the simple reason that trading these instruments at GCI can literally make $500 in 30 minutes or lose $500 in 30 minutes ON A $50 LOT for crying out loud because of the high leverage combined with the volatility of instruments like the Dow Futures, Nasdaq 100 Futures, S&P 500 Futures (and of course the DAX 30 Futures which single handedly has contributed to a couple of thousand dollars in losses for me)!!! All I'm saying is 'be careful'. Trading these instruments with high leverage is very exciting but it can 'kill you off' very quickly too.

6 - I came across something interesting which related to Bollinger Bands, RSI, and Parabolic SAR and I just have not had the time to sit down and create the 'RSIBoll' indicator (but I may just sit and do it after I've finished this reply to you). I did mention this earlier (a few days ago) and it certainly also looks like it has merit. I also 'like' EMA's but, again, I have found that, for some or the other reason, trading with any of these things just does not 'suit' the 'trader' that I think I am i.e. they're just too slow and not 'defined' enough for me i.e. Wilders systems give me a very 'fixed' and 'rigid' set of parameters and this is what I have discovered I need. If I don't have this type of 'rigid' structure I will tend to 'second guess' the market, hold on to losing positions 'hoping' or 'just let them go a little bit further and if they don't turn around THEN I will close them and then I'll end up holding on to them some more)!!! I even 'managed' to do this with Parabolic SAR i.e. I stopped trading with stops and started using those 'mental' stops and then when a Parabolic SAR stop was 'reached' I'd say to myself 'no - this cant' be - let me hold on for just a little while longer - it must be a spike' - and then - a couple of hundred dollars in losses later I would close the position!!! Wilder's systems tell me EXACTLY which direction to be trading in, where my stops must be, and even more important: WHEN TO TAKE PROFITS AND BE SATISFIED!!! I have since learned that 'knowing when to take profit' is as important (if not more so) than knowing where to place stops!!!

I sincerely hope that I have managed to answer all of your questions.

[chirules54]

Thanks for the quick reply Dale... and yes you answered all my question . So it seems while the commodities and stock indices will follow the system better, they require a lot more margin to trade. As I said before, I'm still kind of "testing" the systems out with forex. I'm using Oanda with very small pip values, although at the moment I have been long on USD/CAD for about 10 days and am up about 220 pips with 15 cent pips so around $33 profit (my beer money). I don't really want to enter any more trades until I get more money deposited to my account so currently I am making a "watch list" where I just write down where I would have entered a trade and see what happens. I can only risk several hundred dollars right now so my trading is going to have to be with relatively small amounts, I can't really risk $50 a lot yet, I'm still in college and don't have a lot of extra money . Does this GCI broker have demo accounts? I would like to take a look at them. Also, I am sending you an email shortly for that coupon code for wilder's book.. Thanks again Dale.