Good Morning All!
Benjimang:
Thanks for that input and the encouragement. I must admit - I do feel a bit better this morning and I'm sorry to be taking advantage of your currency - I hate when that happens. I'm in South Africa and it drives me nuts when prople 'screw' with my beloved Rand. Having said that - I have become so used to thinking only in US Dollar terms - that I keep forgetting that every USD I make I have to multiply by a factor of seven when I bring it home - so currently my profits on forex at these two brokers totals around R35 000 ZAR - which is not bad for two days work!!! Put it this way - in two days - I made enough to pay one of my cars and my house. That's good! On the other hand - I just know that if this move South continues - I be swearing big time!!!
It does amaze me, however, how once again the charts and the indicators were right and the TV 'experts' caught quite a few people off guard I would imagine. You won't believe the amount of times the 'experts' on Bloomberg and CNBC and CNN have sat there and said that the AUD will 'soon' be at parity with the USD and there was no question about it. While this may happen in the (very) long run - I don't knwo - if there is one piece of advice I can once again stress to the new traders (I hate the word 'newbie' or 'noob' - trust your graphs and indicators! As Bill Williams (my favourite) aludes to in his book: by reading this far you probably know more than the experts on TV and that they get paid for the number of words spoken! It always amazes me that when there is a huge movement like the downward move in the Indices LAST Friday they were talking about the sub prime crises and saying that it's THE correction that everybody has been waiting for and the financial world as we know it is about to come to an end. Then on Monday morning this last week there was a rally on stocks and then they were saying how everybody is overlooking the sub prime crisis and is not worrying about it and it should not be a problem and life is good. I mean it's almost surreal for crying out loud! Put it this way: six months ago I would have bought AUD with everything I had - now I know better - finally!!! The same thing with Gold - AGAIN!!! Last week - there was NO QUESTION that Gold was NOW THIS TIME DEFINITELY going to beyond $700 - the drop in stocks - the rise in Oil - NO QUESTION. Well - here is my newsflash - China increased interest rates LAST Friday - and guess what - Gold AGAIN started moving back down - just like it did the last time the experts said it was going to $700 an ounce! At that same time - China raised interest rates - and Gold started moving back down from $683. One expert even had the cheek to say that it was going to go $700 by that weekend and this was a Thursday. Of course - what did I do - instead of using my even limited knowledge of the indicators and charts at the time - all of which were telling me that Gold was going South instead of North - I bought Gold with everything I had - and - because the 'experts' were so sure - when it started going down - I held on and held on and held on thinking that it was going to suddenly turn around because 'how can these experts be wrong - it's their business - they should know'. Anyway - the long and short of it (nice play on words on my part don't you think) is that when I eventually decided to close out my 'expert' positions - I had lost somewhere in the region of $6000!!! Like I said - it's amazing how much knowledge huge losses can buy!!! On the other hand - yes - stocks started tumbling on Thursday and maybe THE 10% correction has started - but I'm real glad I did not go short LAST Friday because of what I saw on TV - I would have been stopped out - many many times between Monday and Thursday this week. See what I mean.
I see your thoughts about getting out when you did. If the truth be told I even started putting Fibo levels on the chart and noticed that it bounced off the 38% line about three times yesterday before going through it but it eventually did (although I think it went back after I closed out my positions - I have not looked this morning). I battle to use Fibo levels because I never really quite know where to place the start and end points which, I believe, is a common criticism of Fibo. One thing I have learned and don't have a problem drawing and using is pivot levels - they definitely do have more meaning for me and for the most part an instrument will trade to some or the other pivot point. Put it this way - when a price goes through R2 or S2 - then you must know that if you are on the wrong side of the trade - the game is almost over!!! Having said all of this - I'm again complicating matters when it comes to Parabolic SAR - which is why I started this thread in the first place i.e. to keep it simple and not 'mess' with the indicators!!!
adamgalas:
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I noticed in your AUD/USD example that sometimes 1 or 2 dots appear and then the trend reverses suddenly and the dots go the other way.
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You are right - that does happen - but that is where you stop and reverse i.e. take the loss and open a position in the opposite direction. It is the 'nature of the beast' as it were. The trick is to just accept this and 'doggedly' stick with the indicator - don't give up on it - that is why it works in the long run.
The indicator was designed to be used like this (I am going to use a short - or sell - position for this example):
The moment the first Parabolic SAR dot appears at the top of the new daily bar or candlestick (and I literally mean 'the moment' i.e. you have to be sitting at the ready when the chart ticks over) you open your position with a market order. Your stop loss is set to the current value of Parabolic SAR (or at the physical level where this first dot has just appeared). So in other words on those same AUD/USD charts you would have opened a position at 0.8793 and your stop loss would be at 0.8868 - which is not too large at all. Now let's move on to the next day. The next day your new dot would have appeared and assuming the price was going in your favour i.e. in this case it would have to be going down - you would move your stop to the value of the new dot and so on and so forth. This AUD/USD is a very bad example though - again - because of the 'severity' of the move. The reason I say this is because you will notice that on the second day the value of Parabolic SAR has not changed at all i.e. it still has a value 0.8868 so you would just leave your stop loss where it was. However - I know that on Monday morning when the new daily bar appears a new dot will appear that will have moved quite considerably down and I will then change my stop loss to whatever the value of that dot is. I have attached an image of the daily USD/CHF which shows the position much clearer. You would have opened a short position at around 1.2337 (looking at this chart though I would imagine that the first dot appeared sometime during the day. Remember that the first dot in the opposite direction only appears when the current price has pierced the previous Parabolic SAR) and your opening stop loss would have been 1.2468 (which in this case is quite large I agree). But look what happened from there. Anyway - every day from then on you just move your stop loss to the current value of PSAR (I'm getting tired of typing 'Parabolic' - I almost ALWAYS spell it wrong the first time I type it).
For a clearer explanation I have drawn some lines on the chart.
On the first day you would have opened your position the moment the first dot appeared at the top i.e. you would have opened your position around the price denoted by the green line. You would immediately then have set your stop loss at the price of the current PSAR as denoted by the red line at the top. Then every day from there on you would change your stop loss to be the value of the new days PSAR dot denoted by the yellow lines (I just did the first few). Now if you keep going look what happens toward the end. The PSAR starts accelerating i.e. the distance between the dots starts to increase exponentially thus 'aggressively' protecting your profit (quoted from the book). I have marked these places with the purple lines for clarity. Put it this way: you may have opened at 1.2333 and even if you followed the indicator 'doggedly' and waited to get stopped out you would have been stopped out at about 1.2069 which is 264 PIPS over a period of about 28 days. In this case of course there was a better manual exit because if you look at the bottom of the chart you will see that a new PSAR dot had already appeared a few days earlier so you would then have just taken profit and opened a new long position i.e. stop and reverse. This would probably have gotten you out at around 1.2012 - which is then about 321 PIPs. Get the picture.
Now - I know that if you look at the chart - it is obvious that you are getting in late i.e. you probably missed about half of that very nice long bar going down and you probably also lost out at the end when the price started moving up again. The point is - don't be greedy (although that's very rich coming from me). Look at what you made on this trade. The point is - do you want to get in as early as possible and get out as late as possible and maximize your profits and give yourself a pat on the back because you're the new 'whiz' kid trader with an edge AND run the risk of being wrong and losing OR do you want to slowly make pretty 'sure' money? I've passed the stage of trying to prove something - I now just want the money. I am confident that in the long run just following this indicator will nett you profits in spite of what they call 'whipsaws' and losses. That's good enough for me. Put it this way - at my other broker - where I still have those fifteen positions open - every single one of them is 'in the green' and I've never seen this before. Actually - on this point - I think that having as many open positions (on different pairs) as you can afford is a good thing. Why do I say this? Well - the chances of every single trade going against you is pretty slim in my opinion. You have effectively created a 'hedge'. In other words - even if a couple of them turn and you get stopped out - the nett difference should be a profit at the end of any given period. Remember that you may have things like USD/CAD and AUD/USD and USD/NOK etc. etc. and there is very little chance of fifteen or twenty pairs going against you ALL at the same time. Think about it.
One last thought. In order to be 'ultra' sure you could look at what the longer term trend is then then only take positions in that direction on the shorter timeframes. In other words: take USD/CHF. Look at the direction that PSAR is going on the weekly and / or monthly charts and then, working on the daily, only takes positions (based of course on PSAR) in the SAME direction. This would add to your sense of security BUT then you are not longer using a stop and reverse system and it may take you a lot longer to turn more profits. On the other hand - those would probably be pretty 'sure' profits! Actually - this is probably going to be my strategy on AUD/USD for the next couple of weeks i.e. if the weekly starts moving down I will only take short positions based on the PSAR on the daily. Like I said - AUD/USD at the moment is a 'special' case and until it settles down one way or the other - I'd rather be 'sure'.
Lastly - have a look at this information:
Parabolic SAR -- Technical Analysis Education
It is the best explanation of PSAR that I have seen (other than the one in the original book).
Actually - in closing - I must tell you that the book is quite an education on its own. The book was written at around the time that PC's first came out. The book is filled with hand drawn charts which is how things were at the time. In those days charts were drawn by hand on graph paper and calculators were used to work out values for the indicators. Can you imagine? On the other hand - it just goes to show how long this indicator has been around.
Regards,
Dale.
Edit:
P.S. Take a look at this thread also - I see a trade coming - either with Parabolic SAR or the subject of the thread:
Awesome Oscillator - that's all!!!
OK - last post for today!!!
Now I will be back to trading 7 systems at once.
...and i got margined out (even after knowing and reading books which keep on saying "USE MONEY MANAGEMENT USE STOP LOSSES") 
Linear Mode
