Parabolic SAR - that's all!

[Benjimang]

G'day everyone.

I think the reason this indicator would work better on a daily timeframe than the 4h is all to do with ranging vs trending. Within one day there will be several ranging periods (the Asian session is a good example) and only a few trends per pair. Given that the PSAR strategy is adversely affected by periods of ranging, trading with it intra-day would require some careful planning with regard to timing. Probably best to start around 5-6am GMT to catch the London open and only trade for a few hours, or one good trade. Then try again a couple of hours before the NY open. Does this make sense to anyone?

As for trading the daily charts, ranging periods don't occur as regularly. This period of time will be telling, because there is typically less volatility at the biginning of the month. With most economic news releases comming out after around the 10th and continuing through most of the rest of the month, the second half of the month should be the most profitable.

My point is this system should work better on the daily due to the regular ranging periods that will occur on any smaller timeframe. I'm not saying the PSAR can't be used on a smaller timeframe, but you will need to be selective with WHEN you trade within the day. Just my thoughts.

-Benjimang

[dpaterso]

Totally agree - and well put!

I had something happen today - totally unexpected.

Attached is the daily chart (today) of EUR/SEK.

You'll notice that the price penetrated PSAR - stop and reverse order was executed - and then the price retracted. At this point however you are now long.

What would you do?

Again - in keeping with the point of this thread - I've stayed long. I have placed an order to stop and reverse at the value of the PSAR dot for the previous day.

Just interesting - it appears that this was a news 'spike' or something else happened (I NEVER get false spikes at this broker so the movement was valid - no question) - and on no other chart that I examined has PSAR ever been taken out on the first dot. The only other thing that I can think of is that this is a high spread pair.

Edit:

Sorry - what I should have mentioned is that this morning I opened a short position on this pair because a new PSAR dot had appeared. Not long after that was the stop and reverse executed hence the long position described above.

Thoughts anyone?

Regards,

Dale.

[Benjimang]

I guess that's the only tricky part of trading the daily with this method. Within one day, the price can move so far up or down so as to 'flip the dot', then retrace far enough to re-flip it. I am not yet trading this method, but I have an idea that might help. IT HAS helped me with the system that I am currently trading:

Wait until a new bar opens up before you act. This way, you know that the indicator has settled for the previous bar and it won't change again. This has helped me to be more mechanical with my trading and be less influenced psychologically. dpaterso, I am the same as you... I can't help but check my open positions ALL the time. By introducing a rule that I only act at the beginning of a new candle, I have SEVERELY reduced the amount of instances where I pull a position too soon because I wuss out, so to speak. I use this technique on all timeframes and it is one of the best things I have done with my trading. There are two drawbacks though:

1. You might miss some profits. By waiting till the new candle opens, you may be reacting a little slowly to the market. I believe this is offset by the amount of times it will keep you in a profitable trade, or stop you entering a trade prematurely.

2. Determining what time of the day the daily chart opens a new candle can be tricky. Also, you might be asleep or at work when the new candle opens, so your reaction time might be even slower.

See what you think and let me know.

Cheers,
Benjimang

[dpaterso]

Good Morning, Good Morning, Good Morning (ever watch 'Fawlty Towers')?

Benjimang:

Thanks for the input and insight.

I am the same as you... I can't help but check my open positions ALL the time. By introducing a rule that I only act at the beginning of a new candle, I have SEVERELY reduced the amount of instances where I pull a position too soon because I wuss out, so to speak. I use this technique on all timeframes and it is one of the best things I have done with my trading

Glad to hear I'm not the only one!!! Like I said before - I say 'damn - I should not have pulled out when I did' many many more times than I say 'wow - am I glad I got out when I did'!!!

1. You might miss some profits.

Not worried about this anymore - the profit is what counts - and I'd rather make smaller profits more often - than huge profits which invariably get offset by huge losses.

2. Determining what time of the day the daily chart opens a new candle can be tricky. Also, you might be asleep or at work when the new candle opens, so your reaction time might be even slower.

Fortuanately not a problem for me. As you probably know I'm in South Africa so the daily 'ticks' over at 06h00 here which is 00h00 NY time (at two brokers) and 07h00 at the other (I've never been able to figure out why their daily is an hour behind but not realy a problem). What's great for me is that I normally work (watch) until about 23h00 which allows me to cover the European and US sessions. I've tried to cover the Asian sessions as well but it became extremely counter productive very quickly. Actually - that's something I have noticed - my trading sure has improved now that I'm getting sleep!!! That may sound strange but I'll tell you - your mind does need to be awake - otherwise you really make stupid decisions.

Anyway - I'm going to give your advice a try. Thanks.

As far as the thread is concerned I have made some more observations this morning:

1 - There were quite a few positions that I did not open last week when I first started this because there were already two or three PSAR dots showing. I had a good look this morning and I figure that with PSAR you COULD theoretically open positions no matter how many dots are showing. Why do I say this? Because remember that although you are opening positions late your stop loss is much smaller if you are using the indicator as designed. So - the logic being - you are getting in late - if the trend continues - good for you - if not - you stop and reverse with a minimal loss.

2 - I also realised that I have been TOTALLY stupid when opening all these positions at my one broker!!! I forgot that they have a Level 2 platform!!! On Level 2 the spreads are minute compared to the normal orders. There is commission payable on every trade but this equates to be far less than the cost of the spread on normal orders. I can't believe I forgot about this!!! I mean - sometimes - there is NO spread - and when I looked at some of the spreads just this morning - I've opened some positions where there is a fifteen or sixteen PIP spread on normal orders and on Level 2 that same pair only had a three PIP spread. This makes is more viable to trade what are normally high spread pairs like most of the exotics.

3 - Take a look at what happened this morning with EUR/SEK (the problem child from yesterday)!!! Now there is a PSAR dot at the top and a PSAR dot at the bottom!!! What to do??? I added (and I know this is cheating) an indicator called 'TRIX' just to get a 'heads up' and this indicator tells me that the trend is still up (this indicator is some or the other tripled or quadrupled doubly smoothed something or the other and is designed to indicate the direction of the major trend and keep you in the trend as long as possible). Now - don't get me wrong - I'm not circumventing PSAR - it was just on this pair that I had no direction at all - still don't!!!

4 - There is an inherent problem opening as many pairs as I have opened. I just realised that by opening as many positions as I have that you are effectively creating 'hedges'. It's almost like going long AUD/USD and short NZD/USD. While both pairs wont move at exactly the same time and by exactly the same amount the one will show a loss and the other will show a profit and the nett effect will be either a smaller profit or smaller loss. On the other hand - I have still not quite cleared this in my mind. Does this actually make a difference? Actually - I'm talking nonsense (I think). If I take a look at these same two pairs they are BOTH going south based on my PSAR positions so they are not effectively 'hedging' each other. Actually - the bigger danger appears to be that BOTH of them go against you at the same time!!! I need to research this phenomenon in more depth but any comments or input would be greatly appreciated!!!

By the way - as I type - profit on what is now 36 positions / 36 pairs is $1916.71 I did not get any 'new' PSAR dots this morning - just trying my 'it's OK to enter late theory' as detailed above).

Edit:

I'm 'wracking' my brain on this one i.e. with the number of pairs. I keep thinking to myself I should not be trading the 'crosses' e.g. it's not making sense to me to be trading EUR/GBP AND anything else EUR/??? and GBP/??? for example. In other words - I have a lot of other EUR/??? positions and a lot of other GBP/??? positions - and are these other ???/??? positions not pretty much dependant on the movement of the EUR or GBP??? Thinking!!!

Another edit:

Also - is it just me - or are the currency markets not really doing anything??? I'm getting reminded once again why I trade the Indices and Commodities and not Forex!!!

And yet another edit (actually this is more of a 'message to self'):

HANG IN THERE!!! Now that there is no movement I am SOOOO tempted to just close all of the positions that are showing a nice profit!!! What happened to the 'violent' movements I saw last week and on Monday / Tuesday this week??? After the 'shinnanigans' last week on stocks even the Indices seem to be asleep!!! It's like what I imagine to be the 'doldrums' (I'd make a terrible sailor - although - if the truth be told - that's EXACTLY where I want to end up - Alaskan Crab Fishing on the Bering Sea with my son - once I've paid off all my debts and bought a crab boat - ala 'Deadliest Catch' - just think - I could trade the DOW and the DAX via satellite)!!! Let me go and wash my car!!!

Regards,

Dale.

[Benjimang]

G'day dpaterso, there are quite a few 'correlated' pairs. AUD and NZD move in a very similar way for two reasons: wer'e both CommDolls (heavily influenced by commodity markets), and we both have high interest rates (good for carry trading). Swissy and Yen are related due to their low interest rates. They're often more volatile due to the role they play in different trading strategies, and will move in similar patterns across all the different majors. GBP and EUR are quite similalry behaved for the obvious ties in economies.

Basically, if you place one lot in each of two correlated pairs, it's very similar to placing two lots in one. It is a little bit different in the way that your trade will behave during news releases. You should take that into consideration according to your money management plan.

[dpaterso]

Good evening all!

OK - well - bad news - I had to close out some positions - purely because my margin percentage started to drop below 30% at some point during the day (and the broker where I had all of these pairs open does not take kindly to that - which is good for the trader anyway). So - what I did - I closed out all the positions that were showing a profit (was still a nice little profit) and left the ones that have not been stopped and reversed.

It's not a problem though - I will continue with the 'experiment' - it's still early in the month - no problem - BUT - every new position I open I will open on their Level 2 Platform (much lower spreads e.g. I just opened a new position on GBP/NOK - Level 2 spread at the time was 92 PIP's - 'normal' order spread is 150 PIP's - makes a big difference when you are using an indicator that has to eat your PIP's before a reversal).

Sorry about that people - no choice.

Oh - and another observation - after today I don't advise opening positions after a few dots have already appeared i.e. only when the first dot has appeared do you open a position - opening positions with a few dots already showing this morning is actually what caused the problem in the first place i.e. because you don't already have a profit to fall back on if the direction changes temporarily - you are already in a loss position from the 'get go' - just not worth it. Also - since - starting this 'experiment' last week - I have noticed that your profit accelerates at the beginning of opening a position but price acceleration starts slowing down toward the end (but PSAR starts accelerating to protect profits - that's by design) - so - there is no point in opening positions late by the looks of things - the amount of time you might be 'lucky' will just not outweigh the losses.

Regards,

Dale.

[dpaterso]

Hello again.

You know what - I'm starting to think that I am making a fool of myself here.

I mean - out of sheer boredom - waiting for the NYSE to close - I was flipping through some forex charts - and I noticed this on quite a few of them:

This daily thing that I'm banging on about is starting to NOT make sense even to me.

I mean - I just looked at the thirty minute chart of GBP/CAD for example - and compared it to the daily chart. Had you based your entry on Parabolic SAR you would have entered on 12 July at around 2.1236 (long) and today you would have been stopped out at 2.1439 - that's 203 PIP's since 12 July. But - if you entered YESTERDAY morning also based on Parabolic SAR BUT on the thirty minute chart - you would have entered at 2.1675 (short) and you would have been stopped out at around 2.1475 and - give or take one or two 'hiccups' along the way - that's 200 PIP's in TWO days.

Maybe I'm wrong here - with this daily thing. Sorry people - I don't know at this time!

Regards,

Dale.

[ccox]

It seems to me, the more important question when deciding to enter a trade, is... now that there is a new parabolic dot, is there a 2nd indicator, confirming this?

Please see my attached chart as an example of a bad time to enter, even though a new parabolic dot appeared.

And I really think, you could potentially wait for a couple dots, even if you've had a 2nd confirming indicator, and still get a win. Today was just a bad day to trade. With the big NFP coming out tomorrow. The market just wasn't moving, and for the most part, stayed in a very tight range. So its no wonder if people were getting stopped out, using this system, on a day like today.

Thank God for demo accounts!!!

[dpaterso]

Hello - thanks for the input.

You know - I've spent the whole day looking at this again - and I reckon this indicator does work EXTREMELY well - except for one thing - you have to have only ONE pair open - not the fifty thousand that I had. The problem is that, like I said before, you eventually end up in a sort of 'hedge' situation e.g. EUR/??? and GBP/??? and then EUR/GBP - they can't all show a profit at the same time!!! One has to go down for the other to go up and while I thought that this would not be an issue with this indicator i.e. it really does not care what's up and what's down - you profits are negated after a while (that's quite a word that - negated)!!!

Anyway - continuing with my 'experiment' - what pair goes up and down and up and down and up and down (you get the picture) all day (or at least most of the time)? I just want to try something else. Some of these pairs have a huge movement and then do nothing for the rest of the time - and that certainly will not work with this indicator.

Regards,

Dale.

[willsucceed]

I would suggest playing with yen crosses. They tend to be correlated and are fairly volatile.