Parabolic SAR - that's all!

[dlm1506]

Has anyone tried increasing the acceleration factor/incremental step on their PSAR indicator parameters?
Increasing the acceleration factor will tend to make the PSAR indicator on a chart more responsive.

Dave

[dpaterso]

Hi folks!

dlm1506:

I quote from the book (hope I don't get in trouble for this):

'I have tried many different acceleration factors on this system and have found that a consistent increase of .02 works best overall; however, if you desire to individualize this system in order to vary the stop points from what others may be using, the range for the incremental increase is between .018 and .021. Any constant increase within this range will work well. Use the number of increases it takes to reach at least .20, but do not exceed .22' - J. Welles Wilder - New Concepts In Technical Trading Systems.

Now - for anyone watching this thread - an update from me:

I do not think that you can beat this indicator for ease of use and an overall profit IN THE LONG TERM!

Further to my last post (where I tried to 'second guess' the indicator by using MACD to place counter trend or counter Parabolic SAR orders) I had to write off nearly $3K in a stop and reverse this morning i.e. GBP/JPY - tried to second guess the indicator, placed a stop order, order was triggered, and then price started moving away again. Had I not done this and simply followed Parabolic SAR - that would have been a $3K profit within a week or so.

The point is this: while this indicator may result in huge drawdowns you will make a profit EVEN in a ranging market. Why do I say EVEN in a ranging market? Simply because if you have enough margin to open enough positions on enough different pairs the profits will exceed any losses - due to some pairs ranging - by a substantial amount I reckon.

Put it this way - again - this indicator is low maintenance i.e. an hour a morning to open new positions and move stops - that's it - and the moment you get stopped out and profit taken - stop and reverse. As mentioned before - there are better ways to get in an out with (probably) far higher profits and far less drawdown - and - if you are concentrating on trading forex pairs - then maybe this indicator will not provide the best results BUT this indicator will provide results in the end nonetheless and that's good enough for me.

Once again - I think the main problem with using this indicator is physcological i.e. when you first open all your positions the profits don't seem to 'mount up' as quickly and maybe at first you will take quite a few losses and then give up BUT if you hang in there - once you are in the swing of things i.e. once you start getting to your first stops and reverses - and maintain the system daily without fail - I don't see how you can go wrong.

I have been 'messing around' AGAIN since the beginning of the month and only this morning - scrapped all my 'let's mess with the indicator' BS - and opened positions AGAIN as many as possible (I have to admit that I have now topped up this account to prove a point and NOT get close to running out of margin like I did when I first started this 'experiment') - and I have already made more this morning out of forex than I have made since starting to 'mess' with the indicator i.e. as I type I am now on $1088.18 profit since opening my positions this morning INSTEAD of holding on to the $3000 loss thanks to MACD and me (that rhymes)!!! OK - so I'm still about $2K down right now - but - it's still early in the month.

Regards,

Dale.

[dpaterso]

Hello - just one or two more observations:

1 - Only stop and reverse once the first Parabolic SAR dot has appeared in the opposite direction i.e. if your trading platform will only draw the next dot once the current candle has closed - wait for that dot. In other words - don't stop and reverse 'the moment' the Parabolic SAR has been penetrated on, for example, the daily charts i.e. wait for the next day to confirm that the new PSAR dot has been drawn in the opposite direction before stopping and reversing. The reason I say this is that I have noticed that sometimes (pretty often) Parabolic SAR is penetrated by a 'spike' (probably news data) and then the price retracts and carries on in the same direction it was going in the first place. This is against what I said before i.e. IMMEDIATELY stop and reverse when Parabolic SAR is penetrated but in hindsight and with a little more investigation I don't think that this is correct. Also - thinking about it - when this indicator was devised - the trader would only have known at the close of the day that Parabolic SAR had been penetrated i.e. they did not have realtime data like we do so they would only have stopped and reversed if the daily closing price had indeed penetrated Parabolic SAR on close.

2 - I have also noticed that when the Parabolic SAR dots form an 'arc' or 'curve' from the get go then this position turns into profit soon and there is pretty much no doubt. I have noticed (in most cases anyway) that when the first few dots are sort of close together and form in a straight line i.e. no 'curve' and 'closely spaced' then you should maybe not be in this trade i.e. it's like there is no 'conviction' to the price movement and what appears to normally happen in this case is that the price sort of 'hangs around' and a reversal in the opposite direction of Parabolic SAR is imminent.

Just my 'forex trillion dollars' worth.

Any thoughts?

Regards,

Dale.

[orgcaptainnemo]

Originally Posted by dpaterso

2 - I have also noticed that when the Parabolic SAR dots form an 'arc' or 'curve' from the get go then this position turns into profit soon and there is pretty much no doubt. I have noticed (in most cases anyway) that when the first few dots are sort of close together and form in a straight line i.e. no 'curve' and 'closely spaced' then you should maybe not be in this trade i.e. it's like there is no 'conviction' to the price movement and what appears to normally happen in this case is that the price sort of 'hangs around' and a reversal in the opposite direction of Parabolic SAR is imminent.

I've noticed this too, but sometimes the dots start off close together and then sort of slide and you could have hit a huge profit if you'd stayed in. I think these are more of a hindsight is 20/20 type deal. You're probably better off staying in those trades just in case, because when you hit a huge one it's going to far outweigh any small gains/losses you might incur during the short stretches when big moves are not made.

Oh, and here is an example from the current EUR/GDP that I've been watching. Notice that #1 and #2 are very similar. I'm going to stay in it just in case something drastic happens.

Just my two cents,

Thomas

[dpaterso]

Hi Thomas,

Thanks for the input.

I agree with you on all points - it's just REALLY difficult to stay in when you see this - but - that's the way Parabolic SAR works.

I'm pretty sure about waiting for the new PSAR dot to appear before stop and reverse though - as just today I've made some big profits (still in) - but the one or two positions that I opened 'immediately' when Parabolic SAR was penetrated are just about balancing those profits out. Put it this way - I am of the opinion that the small amount of PIP's you may lose by entering the trade the next day (assuming that at some point it turned again and started going in the right direction) is nothing in comparison to one of those trades opened 'immediately' upon penetration and then the flippin' thing turns and keeps going in the opposite direction and invariably starts trending nicely for a few days!!! Funny enough - the positions where I have had this problem during the course of today ALL started with those 'close together' and 'in-line' dots!!!

I (you / anybody using this indicator) just have to remember that there will be losses and you can't win them all but the profits over the long term are pretty much guaranteed one way or another as long as you stick to and maintain the system on a daily basis. I hope I'm right because now that I've 'topped' this forex account up (to prove a point like I said) I'm no longer trading small change on an almost 'wiped out' account like before when I started this 'experiment'!!!

Regards,

Dale.

[orgcaptainnemo]

Dale,

Are you still only playing the daily/weekly/monthly charts?

I haven't actually taken to laying down some cash. I made myself promise I'd run the system for a month or so and then see where I'm at. I have a very good feeling that my "fake" account will be in plenty of money by then.

I agree with you that waiting for the PSAR to post and then entering the trade is the right way to go about it. You may miss some pips, or you may not, depending on what happens. Remember, once you pick a system stick to it!

Hoping to be trading with real money soon,

Thomas

[dpaterso]

Hi,

Yes - I am only working with the daily charts (and this is already pushing my patience to the limit so the weekly and monthly charts would be out of the question).

As far as I can see this indicator will work on pretty much any timeframe though although I think that with enough investigation you'll find that there probably is a balance between timeframe and amount of profit particular to a certain pair e.g. I think it was on GBP/JPY - on one or two occasions I could see that you would have made far more on the four hour than you would have made on the daily but on other pairs the daily and longer make more profits - and that's another thing I've thought about i.e. what about opening positions based on the daily but using the four hour for stop losses or to lock in profit - the logic being that you get in on the daily but the retractment has to be far less on the four hour to get to a stop and reverse point thus saving those 'end reversal' pips. In other words - you'd not stop and reverse on the four hour but just get stopped out with profit - and then re-enter on the daily when the PSAR dot appears indicating a reversal. Not sure. Just thinking again - MY DOWNFALL!!!

Regards,

Dale.

[orgcaptainnemo]

Dale,

Quick question for you:

What parameters do you use for the Parabolic SAR? I see that, for instance, forex.com graphs it using "0.02, 0.02, 0.2" . Where as oanda.com uses "0.02, 0.2".

The resulting graphs are quite drastically different.

Thanks,

Thomas

[dpaterso]

Hi Thomas,

I use the defaults which are as follows for me:

GCI - 0.02 / 0.2
Delta - 10 / 2 / 20
Tradex - 0.02 / 0.2

I can only assume that looking at those figures each broker just has a different way of computing the constants and I would imagine that they are all using the defaults as above.

Having said that - Parabolic SAR at Delta and Tradex are always exactly the same BUT at GCI it is different - many more false signals.

I've got to tell you though - as I type - I am now sitting on profits of $18522.52 believe it or not (at some point today it was over $20K) - and that is since yesterday morning!!! I do know that all of this carry trade business may be exaggerating my profits i.e. ???/JPY is where the big amounts are sitting - but having said that - it really is the most profit that I have ever seen displayed on my screens at any one time in seven months (it's even bigger than any single loss that I usually have displayed on my screen). So far - you just can't beat this indicator!

Once again - what seems to be working for me anyway: open positions on as many pairs as your margin will allow - and work it every day. The last time I tried this (when I started this thread) I had to stop following the indicator because I nearly ran out of margin i.e. not enough margin to cover all the pairs I had open positions on but this time I've thrown some serious $$$ at it to make sure this does not happen again and so that I can see all the trades through, based on the indicator, to the end of the month. I'll tell you though - it takes either a very stupid man or a man with balls of steel - to not take $20K off the table - I'm not sure which man I am right now but I'm seriously hoping its not the stupid man!!! The problem is this: if you do take your profits early you may have to wait a long time (especially when trading the daily charts) for another signal i.e. another Parabolic SAR dot to appear and on some of these pairs I can tell you it will be many days before another valid entry point appears and I have learned the hard way that there is no point in entering a position when you already have five or six or more Parabolic SAR dots displayed i.e. invariably a late entry almost always seems to turn into a loss.

Regards,

Dale.

[orgcaptainnemo]

Dale,

Having just finished school and such I don't have a lot of money. So, my current plan is to deposit $750 into my account and use that, at least until I get paid again! I figure I could run 4 pairs with some leverage (100:1?) and by buying half mini-lots ($5,000) I can keep everything manageable until my next check arrives.

What do you think about this idea?

Thanks,

Thomas

edit: I'm thinking more along the lines of 50:1 leverage and buying quarter mini-lots, now that I think about it.