Parabolic SAR - that's all!

[dpaterso]

*** IMPORTANT NOTE ***

When I started this thread I was pretty new at trading (which may be obvious from my very first post below). The reason I'm telling you this is because things did NOT work out as well as my first post (below) may lead you to believe. All I'm saying is: don't take my first post (below) and think that you (I) have discovered the 'holy grail'. Far from it.

It's amazing!!! Since I added the above comment I see that this thread has become 'unfashionable'!!! Why??? Because all of a sudden the 'quick road to riches myth' has been dispelled YET AGAIN!!!

Trust me on this one: there is far more important information contained in this thread that relates to the psychology of trading and just what this business CAN do to you if you don't 'do it right' than a 'quick road to riches' indicator!!!

*** END ***

Hi folks, I am just so excited I could 'sh1t'!

I have made more money in the last two days than I have in six months of messing around (well almost but you'll get the picture) - and here's how:

Parabolic SAR + Daily / Weekly / Monthly Charts!

I just have to share my thoughts with all:

Why is it that we all feel the need to 'mess' with the indicators and try and find that 'edge' when there are already tried and tested and proven methods of making money!

Anyway - for those of you who don't know - The 'SAR' part in 'Parabolic SAR' actually stands for 'Stop and Reverse' - and not 'Support and Resistance'!

It was formulated by J. Welles Wilder a lifetime ago and his method of trading was basically 'always in the market'. In other words - you go long or short the moment the first Parabolic SAR dot appears and exit and reverse your position when the next Parabolic SAR dot appears in the opposite direction.

This indicator was also designed to 'aggresively' lock in profits. In other words - once you have entered a position - your stop loss gets moved to the value of the current Parabolic SAR dot and you do this every day.

There are only two rules to follow:

Only work on Daily / Weekly / Monthly charts

AND

Do not mess with the positions i.e. force yourself to stay away from them and do not exit them when you 'think' you should - trust the indicator. This unfortuanately requires discipline and patience!

This is not something that I did not already know - I just did not have the patience to see the trades through with this indicator - and it has cost me dearly. Now I'm just interested in making money - not being the new 'whiz trader' on the block!

Basically - what I did two days ago - was open positions on each and every single currency pair that my one broker has on offer - as long as the first Parabolic SAR dot had just appeared on the daily chart. At this point I am showing a net profit of $2182 for a total layout (margin requirement) of about $1500 - and that is after two days. And that is after having two positions stopped out already. One thing to be careful of is trading pairs that have high spreads like my beloved ???/ZAR - it has to move too much to realise a profit (unless you work on the Weekly or Monthly timeframes - then you'll be OK).

Now I know that there are folks that will say that this indicator gets you into trades late and profits are also taken far too late (by it's nature the price has to reverse for a dot to appear in the opposite direction). As unfortuanate as this may be - at least there IS profit 99% of the time! I'd rather make less money on 99 trades in a given month than do 6 or 7 'monster' trades during that same month but lose on the other 94 trades. Get the picture?

In order to maximise profits you could add to positions the moment the first Parabolic SAR dot appears on the Weekly and the Monthly charts (assuming that you are already trading the Daily's).

This 'system' is, of course, the same as James' '45 Pips Per Day - EUR/USD'. The only difference is that you do not need MACD and you do not trade on any timeframe smaller than the Daily's. Trading on the Daily / Weekly / Monthly timeframes makes you 'almost' immune to news data and the associated 'spikes' which, unfortuanately, the 30 minute timeframe is susceptible to. This indicator also does not seem to care about ranges or trends - it just 'plods' along. Now what more could you want?

Actually - I did this after a thought came into my mind the other day (I have them from time to time): all of the indicators were designed to work on the Daily timeframe - not 4 hours / 1 minute etc. etc. I mean - when you calculate pivot points for example you calculate them based on the previous days data - not the previous hours or minutes data - but the previous days data!

Regards,

Dale.

P.S. The only thing better than this is the Profitunity (Chaos) Trading System by Bill Williams and his daughter. Unfortuantely though - this system requires much more 'maintenance' and although generates better profits by getting you into the trade much earlier - there is not ALWAYS a trade - and I am one of those people who HAS to be in the market - so there is my problem. So - if you are anything like me - here is the solution!

[MakeMoneyorDIE]

Sounds Great, Do you have any charts you can send supporting this.....it's hard to learn without visualizing ??

[dpaterso]

Coming up!!!

Now - on the daily chart - my first instinct is to close the position and take profit NOW - going against everything I said in my opener! My logic of course being that NOTHING that drops this far this fast is going to continue going down! I don't know! I mean - at this point - this one lot that cost $1000 - is currently in a profit of $2470 (different broker and it's the only position I have here)! It's tempting! On the other hand - I'm now sure that on the Weekly Chart the first Parabolic SAR dot is going to appear at the top - hopefully meaning that there is a long term down trend about to start.

AUDUSD is probably a bad example though - because its movement is largely dependant on the Gold price - so - if you can predict the Gold price - you know how to handle the rest of this trade going forward (my guess is that Gold is going to continue falling purely based on the fact that when China raised its interest rates last time Gold started its downward tumble - and they raised interest rates again last Friday. I don't know why the so called 'Gold Gurus' miss this every single time - you cannot believe how much literature I receive telling people - once again - that Gold is NOW THIS TIME DEFINITELY going to $700 - that's what they said last time - except - this time - I'm clever enough to watch the charts and not listen to the 'experts'). Of course - on the other hand - the way stocks are moving - who knows!

At the risk of contradicting myself I have also thought about using Bill Williams' Accelerator Oscillator to know when to get out of the position. This normally changes color before the whole of the reversal required for Parabolic SAR to indicate such reversal has completed i.e. early warning. I suppose - if you're wrong - you could alway re-enter the position with a very small stop.

Regards,

Dale.

[Indigo]

Originally Posted by dpaterso

At this point I am showing a net profit of $2182 for a total layout (margin requirement) of about $1500 - and that is after two days. And that is after having two positions stopped out already. One thing to be careful of is trading pairs that have high spreads like my beloved ???/ZAR - it has to move too much to realise a profit (unless you work on the Weekly or Monthly timeframes - then you'll be OK).

That would be my question. If someone is trading the 4 major pairs (EUR/USD, USD/CHF, GBP/USD, USD/JPY) on the daily, what kind of funds would they need to have in their brokerage account in order to totally play this out?

Let me think about this. I enjoy reading everyone's experiences and ideas

[Indigo]

Originally Posted by dpaterso

Now - on the daily chart - my first instinct is to close the position and take profit NOW - going against everything I said in my opener! ... I suppose - if you're wrong - you could alway re-enter the position with a very small stop.

My first thought is that as long as you are in profit there is no wrong time to get out. If your fundamentals are screaming at you why not get out? If you've got a good profit and you want to go ahead and take it so that your account is a little more liquid why not get out?

Just thinking

[MakeMoneyorDIE]

OK dpaterso....help me out here, still a newbie,

so The parabolic sar really only works in TRENDY market....ala
GBP/USD.....from my research using in a choppy martket is too jumpy.

Closer the dots, when is a good time to get in?

[dpaterso]

OK - well - here are my answers to everybodys posts so far (and I just want you all to know that it is absolutely killing me to not close out this particular position)!!!

Anyway:

That would be my question. If someone is trading the 4 major pairs (EUR/USD, USD/CHF, GBP/USD, USD/JPY) on the daily, what kind of funds would they need to have in their brokerage account in order to totally play this out?

Put it this way - I don't normally trade forex pairs anymore - only the Indices. Having said that - I got bored two days ago and had a look at my 'purely' forex accounts that I have at two other brokers - and just decided to try this and let it run and see how it plays out - mainly because it is theoretically low maintenance i.e. once a day - have look - move your stops - that's it. At this particular broker I only had just over $1000 left so I was taking a FAT chance by opening one full position - but - it has paid off - this time anyway! At the other broker (which has far more pairs available) I had about $3000 so I opened positions on each and every single pair that had a new Parabolic SAR dot appearing on the Daily Chart. The lots cost anywhere between $50 and about $160 and I ended up with fifteen lots open. Right now as I type this message the cumulative profit of all of those lots is sitting at $2510. Obviously at this broker the lot sizes are smaller i.e. lot size is 10000 but it is a highly leveraged account. So - I don't know if that answers your question - my total layout was about $2000 if I take an average. Remember that in most cases when you are first opening your position your stop loss is reasonably small so even maxing out your account like I did should be OK although probably not advisable. Also - at this broker - you can buy smaller lots of 1000 so then you would obviously only need about $300 to be in the position that I'm now.

My first thought is that as long as you are in profit there is no wrong time to get out. If your fundamentals are screaming at you why not get out? If you've got a good profit and you want to go ahead and take it so that your account is a little more liquid why not get out?

That's the problem - there is not a single good reason to close this trade - other than fear. Bill Williams' AO and AC are both still red and going down - and even ADX by Wilder himself is telling me to only open the position right now (see attached chart). I hope I'm right!

so The parabolic sar really only works in TRENDY market....ala
GBP/USD.....from my research using in a choppy martket is too jumpy.

Closer the dots, when is a good time to get in?

I'm not so sure about it only working in trending markets - you may not make as much in a choppy or sideways market but I'm pretty sure you will make something as long as you are trading pairs with a low spread. It will definitely kill you if you try and trade pairs with high spreads in a choppy or sideways market - again - like my beloved USD/ZAR, GBP/ZAR, and EUR/ZAR - but if your are lucky and catch a trend on these pairs - you've got it made!

As far as the dots go - well - I just opened these positions the moment the first dot appeared. Wilder - in his book 'New Concepts In Technical Trading Systems' - actually says that you could wait for two or three dots to appear as confirmation before entering BUT then you really are getting in to the trade very late.

Put it this way - take any Daily / Weekly / Monthly Chart and overlay Parabolic SAR - I just don't see how you can go wrong - but - I'm sure - time will tell!!!

By the way - Bill Williams' AO (Awesome Oscillator) also works very well for me. Simple - when a green bar appears - go long (or stop and reverse) - when a red bar appears - go short (again stop and reverse) - that's it. This indicator actually gets you into a trade very early as a matter of fact and I use this trading the Indices. But that's another discussion altogether. The main reason I'm experimenting with Parabolic SAR is that my other broker does not have Bill Williams' Indicators built into the trading platform and I just have not had the inclination to program it in myself (yet).

I have read much criticism about all of these indicators but I'll tell you that I only recently realised that the problem is that we do not stick to them i.e. we do one or two trades using them - and when the first loss happens - we abandon them and try to look for something else. The key to these indicators is to stick with them no matter what AND - more importantly - only trade on the Daily / Weekly / Monthly Charts. Again - your are pretty much immune to those 'pesky' news releases. All of my positions managed to withstand the US reports yesterday and today (major releases). Normally - I'm so used to getting stopped out because of these news releases - because I have been messing around with small timeframes - a total waste of time.

Put it this way - at least - lately - I've started to enjoy life again. I'm basically working an hour or two a day now - checking for new dots or red or green lines - moving stops - and that's it. The biggest mistake I have made in the last six months is thinking and feeling that if I'm not sitting in front of this stuff all day and making trades I'm not working - and this has cost me dearly in $ terms. I cannot tell a lie though - I CONSTANTLY check on my positions - I can't help myself - and - I know from experience - that this is my downfall!!!

Regards,

Dale.

[dpaterso]

Help - I just checked again - and AUD/USD is dropping further - and it's killing me not to close the position!!!

Put it this way - I can't see that the Parabolic SAR is going to have enough time to draw dots all the way down until it gets to a reasonable level to protect the profit if you're stopped out - the move down is just too 'violent'.

What is a person to do!!!

Regards,

Dale.

[dpaterso]

Gotcha!

No - I have not closed the position - but I looked again - it's driving me nuts! Never before have I so anxiously awaited market closing time! TGIF!

Actually - if you want to have a good laugh - for those of you that have been around here a while and started off asking questions on BabyPips.com - go and have a look at your first couple of postings! I just did (to keep me away from my AUD/USD position) - and some of my own questions really made me laugh. I amazed how far I've come (you'd be surprised how much knowledge almost $25 000 worth of losses in six month buys you - and that's REAL money not DEMO)! Actually - I'm amazed I'm still here at all!!!

Actually - it made me think of a cartoon / drawing that I saw years ago:

It was a picture of a frog about to be eaten by a Pelican. The frog is already in the Pelican's mouth but his arms are around the throat of the Pelican and the caption is 'Never Give Up'! If anybody else has seen this drawing please let me know and if it is on the Internet give me the link - it would make an ideal avatar for me.

While I'm passing the time and entertaining everyone let me also post a quote that I saw somewhere else which is also very apt and very amusing:

'When you find yourself at the bottom of a very large hole - the first thing to do is stop digging'.

I love that one (it has actually negated some of my losses would you believe).

Regards,

Dale.

[dpaterso]

Alright alright - I closed the position. You can all call me a 'chicken' if you want.

There was, however, method in my madness:

I had a look at the four hour chart i.e. one timeframe down and I noticed that Wilders' ADX is starting to move up, and Bill Williams' AC has two green bars showing already - and that almost always guarantees a trend reversal coming (at least on the Indices). I even added Stochs to be sure and they are also turning up.

Maybe this in itself is a good way of doing things i.e. work on the Daily / Weekly / Monthly charts but once you have opened a position monitor the four hour charts (or one timeframe lower than the one that you are working on) - that way you could get a warning that there is a reversal coming.

Anyway - I'm out (although I'll leave this same position open at my other broker and see what happens with it. Those are smaller and cheaper lots so if I lose a couple of $$$ it won't be anywhere near what I have just made).

What I will probably do now is wait and see what happens on the Weekly next week. If the first dot appears when the chart opens on Sunday I will go short again and then monitor the same indicators on the Daily Chart and see what happens.

Now don't get me wrong - I know this all sounds like I am going against everything I was trying to preach at the beginning of this thread. I'm not. It is just that this trade was a 'special' case because of the 'ferocity' of the fall. If it were not so 'violent' and 'huge' I would have stayed in this trade until I was stopped out by a Parabolic SAR dot. Shot dot!

Regards,

Dale.