Parabolic SAR strategy - potential 100+ pips per month

[KingKaivar]

I've been doing backtests with this strategy and so far the results looks positive. I'm interested to see if other people can backtest this or try it with different timeframes.

The strategy is simple and only uses the Parabolic SAR indicator. The strategy is as follows:

• Open a position whenever the SAR dot crosses over (Dot on top, go short. Dot on bottom, go long).
• Stop loss = SAR dot. Update your SL when a candle closes and the dot moves.
• Take profit = Half of your initial stop loss. Unlike the SL, do not update your TP at all.

30 Min Backtest
I've done a manual backtest over two months on the 30min time frame with the following results. I stick ironclad to the above guidelines, even when the market is looking flat (which is fatal to the Parabolic SAR).

EUD/USD

1 Oct 2011 to 30 Oct 2011
Nominal profit: 277 pips (excluding spread and holding costs/earnings)
Win %: 64.8%
Number of trades: 88

1 Nov 2011 to 29 Nov 2011
Nominal profit: 388 pips (excluding spread and holding costs/earnings)
Win %: 65.3%
Number of trades: 75

Daily Backtest
I also did a manual backtest on the daily timeframe from 1 Jan 2009 to 30 Nov 2011 with the following results:

EUD/USD
Nominal profit: 717 pips (excluding spread and holding costs/earnings)
Win %: 62.12%
Number of trades: 66

I should note that at one stage I was down -1500 pips on the daily timeframe. I assume because we are dealing with bigger pips on the daily chart, the up and downswings will be bigger.

I'm currently using this on a "live" demo account, with the 30min timeframe, but only have a small sample size so far (8 trades only) so it will take awhile to see how this strategy behaves under live conditions.

This is a "pure" brain-dead Parabolic SAR strategy without any regard towards news, market volatility (or lack of it) or other indiciators. I've attached the results of my backtest as a spreadsheet if anyone's interested (it's zipped since the messageboard won't accept xls as attachments). Any thoughts?

pure psar backtest.zip (7.86 KB)

[KingKaivar]

Further backtests conducted:

30 Min Backtest

EUD/USD

1 May 2011 to 31 May 2011
Nominal profit: 212 pips (excluding spread and holding costs/earnings)
Win %: 66.7%
Number of trades: 90

1 June 2011 to 30 June 2011
Nominal profit: 99 pips (excluding spread and holding costs/earnings)
Win %: 64.5%
Number of trades: 93

1 July 2011 to 29 July 2011
Nominal profit: 189 pips (excluding spread and holding costs/earnings)
Win %: 65.8%
Number of trades: 82

[dpaterso]

Hi,

You don't know me (obviously) but I'm a 'Wilder Junkie'. Parabolic SAR was developed by J. Welles Wilder Jnr. and first presented in his book 'New Concepts In Technical Trading Systems'. My entire trading career has been based on his technical trading systems so 'anything Wilder' obviously 'catches my eye'. If you look around you'll find two threads (both still some of the longest threads on record to date if I'm not mistaken) 'dedicated' to Wilder's work. One of them is called 'Parabolic SAR - that's all!!!' (started when I thought that I knew EVERYTHING when I first started out trading so if you DO decide to read the thread take it for it's entertainment value more than anything else i.e. Parabolic SAR on its own was a general failure so don't go reading around 270 posts, or however long it is, expecting to find 'success' at the end because it never turned out that way). That being said: I've spent six years (give or take a month now) with Wilder's stuff and have my own method of trading Parabolic SAR (but don't trade it at all though i.e. I only trade Wilder's Swing Index System and his Volatility System and THEN only on CFDs on the major Indices). The only reason I'm telling you all of this 'inane garbage' is because I consider myself a sort of 'authority' of Wilder's work (even if I have to say so myself).

The MAIN reason for my telling you the above and posting here though: you CERTAINLY have got a new 'take' on Parabolic SAR which, knowing Parabolic SAR the way I do, makes a WHOLE lot of sense!!! Well done. Alright: I've not looked at your spreadsheet nor looked at some trades yet but I will most certainly do so. I like your thinking here and it's nothing (obviously) that I'd thought about. I know the inherent problems with Parabolic SAR and ONE of them is the fact that because of the many false signals the drawdowns and whipsaws are 'spectacular' EVEN when used CORRECTLY (most people that have not read Wilder's book and have not seen an 'ever so obscure' entry method that is only shown on a chart example and not in the text for Parabolic SAR tend to use it 'as is' i.e. as a true stop and reverse system which it WAS DESIGNED to be but 'things change'). My modification eliminates a lot of the bad (false signals) trades but can also keep you out of the 'picture perfect' Parabolic SAR trade. Now YOUR idea here is something very original!!! Well done (backtesting dependant of course)!!! LOL!!!

ESSENTIALLY and as I understand it: not only are the size of your potential losses decreased with each consecutive bar (which is normal for Parabolic SAR of course) BUT MORE IMPORTANTLY you've also thought about setting a TP that is NOT dependant on your following the trade all the way through until Parabolic SAR has locked in profits. That's one of the inherent problems with Parabolic SAR i.e. too often the trade goes in your favour but Parabolic SAR doesn't 'catch up' fast enough to lock in profits before price reverses and you get stopped out at a loss (and of course then have to stop and reverse and repeat)!!! You could very well be 'onto something' here. Like I said: well done and thanks for posting this!!!

Regards,

Dale.

Edit:

If you're interested in reading Wilder's book you can download it from the 'E-books for Trading Systems' thread in the Downloads Forum here (as well as read about MY 'tweak' or 'enhancement' but don't let my ideas interfere with yours i.e. I don't think the two could work together but I could be wrong):

Technical Trading Systems at TechTraderCentral - Home

(The only reason for seperate forums is because I trade almost exclusively CFDs on Equity Futures and Commodities and this being a FOREX site nobody was interested in having a forum created here for us lowly Equity Futures and Commodities Traders BUT this, BabyPips, is where I 'started out' so tend to 'hang around here' most of the time anyway).

[KingKaivar]

Hi dpaterso! I actually saw your thread just today and have it bookmarked for reading. I think I got into 10 pages of the thread before I realised it'll take an entire weekend to read all 270 pages, lol.

Like you I tried to use "naked" PSAR strategy with the dot defining my SL and TPs but didn't have much success with it. II'm still going to do further backtests with my current strategy tonight and try to understand WHY it's giving me a statistical edge (if it actually does or if I'm just plain lucky with my backtesting).

[dpaterso]

Hello,

Call me Dale!!! LOL!!!

See my edit above (to my original post).

I'm pleased I at least got to 'warn' you about the final outcome of that thread before you spent the weekend reading through it!!! LOL!!! Put it another way: save yourself some time and start at the END of the thread and read it BACKWARDS if you're going to read it i.e. somewhere there, I seem to remember, also detailing my 'tweak' referred to, and there's been some recent activity on that thread too i.e. someone 'resurrected it' a week or two ago. Of course: as I said if you're looking for some fine 'entertainment' (and alright, to be fair, there's a lot of 'cold hard trader psychology truths' from the point of view a new trader i.e. me at the time, that could be of value) then read the whole thing!!! LOL!!!

Regards,

Dale.

[KingKaivar]

Looking over the raw data of five months worth of backtesting, I noticed that my losses and wins tended to occur in clusters. If my trade was a loss, there was higher probablity that the next trade would lose as well.

I decided to modify my backtesting. Every time my trade lost, I would skip the next trade and wait for the next PSAR cross-over instead. The result was more pips, higher win rates and less trades (thus less spread paid):

30 Min Backtest - skip every trade following a loss

EUD/USD
1 May 2011 to 31 May 2011
Nominal profit: 272 pips [previously 212 pips]
Win %: 70% [previously 66.7%]
Number of trades: 70 [previously 90]

1 June 2011 to 30 June 2011
Nominal profit: 65 pips [previously 99 pips]
Win %: 65.3% [previously 64.5%]
Number of trades: 69 [previously 93]

1 July 2011 to 29 July 2011
Nominal profit: 506 pips [previously 189 pips]
Win %: 73.8% [previously 65.8%]
Number of trades: 65 [previously 82]

1 Oct 2011 to 30 Oct 2011
Nominal profit: 285 pips [previously 277 pips]
Win %: 69.1% [previously 64.8%]
Number of trades: 68 [previously 88]

1 Nov 2011 to 29 Nov 2011
Nominal profit: 347 pips [previously 339 pips]
Win %: 66.1% [previously 65.3%]
Number of trades: 56 [previously 75]

The daily backtest also provided better results.

1 Jan 2009 to 30 Nov 2011
Nominal profit: 1459 pips [previously 717 pips]
Win %: 68% [previously 62.1%]
Number of trades: 50 [previously 66]

[KingKaivar]

Here's a screenshot of my backtesting method, for those wondering how I backtest. When a PSAR crossover occurs, I extrapolate the PSAR dot for the previous "trend". This would indicate where the dot was before it was met by the candle, triggering the crossover. This is where you would roughly open your position, with the SL set as the new PSAR dot, and TP as half the SL. Now I follow the candle movement and see whether the SL or TP gets hit first, updating my SL as each candle closes and a new PSAR dot is formed. I then add the results to my spreadsheet. Rinse and repeat for the next PSAR "trend".

[Bobkat]

Hi KingKaviar,

Thanks for sharing your trading System. I like what I see...but I have a couple of questions.

1) As was stated earlier I believe, performance deteriorates during ranging sessions. Why not limit trading to sessions where increased volatility is inherent? In other words, trade only during the London and New York markets?

2) How well established is your TP = 1/2 the value of the SL? It seems in a number of cases we would be sacrificing a lot of pips especially during the more volatile market times (as in #1)?

Regardless, you have put together an easily managed trading setup that seems both profitable and fun to trade.

Thanks again,
Bobkat

[KingKaivar]

Hi Bobkat. My "system" can do with more refining. As to your questions:

1) I tried to see if there was much difference between trading the different sessions. Quite often your positions will overlap the Asian and Sydney trade sessions so there is no way of avoiding it for alot of the time. My original backtest checked to see if this "system" worked at a brain-dead level without regard to news or trading session. But I will look further into this and see what results I come up with.

2) My TP can do with alot more refining. I chose 1/2 SL simply to start my backtesting from somewhere and it's simple to calculate. I might spend the next few weekends just manually measuring the difference between the opening price and peak of each PSAR "trend". The average of this value would be the optimal TP but this will have to involve alot of manual work.

[modernmystery]

The NUMBER ONE thing you must do if you insist on taking this "strategy" forward is to incorporate a TREND FILTER. Parabolic SAR will fail by design in a ranging market on the smaller timeframes. Working with M30 helps (a little) but doesn't address the fact that price will move A LOT in the opposite direction before the Parabolic SAR reacts (again by design - SAR flips over when price hits the SAR dot plotted on the chart).

Also, it would be prudent to refrain from using this strategy BEFORE the open of the Euro Session and AFTER the closing of the American Session.

The "strategy" is flawed and WILL expose you to major drawdown at times (especially in a range) however with diligence and discipline you might just be able to extract consistent profitability - primarily because you somehow worked out that there is "something" to using M30+. You'll be making pips while the M15 SAR agrees - if the M15 starts to disagree - work to protect profits as moderate momentum could require 2 to 5 disagreeing SAR dots before the M30 flips over - strong momentum breakouts will flip the M30 SAR within 1 or 2 disagreeing M15 SAR dots and a spike will potentially flip the current M30 SAR dot immediately.

[dpaterso]

Hello again KingKaivar.

For what it's worth coming from me: I'm liking what I seeing and your methodical approach to this. You're definitely 'onto something' here. I've monitored a few trades today (on the 1-hour charts) of the Dow and it looks interesting. Its simplicity is what makes it appealing.

Just a little bit of advice based on experience (sorry: I'm not sure how long you've been trading i.e. for all I know you've been 'at it' longer than I): don't go overboard with overtweaking and overoptimizing. It's a trap many traders fall into most times unknowingly (myself included a few years back). Believe me: trying to find the ''perfectly optimised set of parameters' will eventually drive you insane.

Somebody posted why not just use Parabolic SAR 'as is' but I see that the post was deleted (I only know because I subscribed to this thread so I received the notification and details of the post). Just so save YOU the trouble of fielding questions like that: 'pure' Parabolic SAR does NOT mean entering a trade the moment the first Parabolic SAR dot appears on the opposite side (that's why I keep referring to the very subtle entry point shown in Wilder's own example). Also with Parabolic SAR: it's not how many FANTASTIC trades you do. It's how many BAD TRADES or false signals that you AVOID that is 'key' to profitability with this indicator. And that's why I personally think that you're onto something good here. Setting your TP at one half your initial risk on the trade just makes pure sense because the chances of that TP getting hit are high. In todays markets: Parabolic SAR will almost always get you into profit almost immediately only to have you stopped and reversed a few bars later at a loss. With your method and logic: you're taking small profits out of the market more consistently I would imagine. Those days of having having LONG trends in one direction or the other are long gone in my opinion. Instruments do trend but they tend to trend far more ferociously and reverse with the same ferocity and therein lies the problem nowadays. So I'd forget about the lost pips on a few trades that don't happen that often by taking profit using your method. Believe me: a few years and a lot of testing by many people proved that this indicator WILL WORK IN THE LONG RUN traded 'as is' but you need to be prepared for HUGE HUGE drawdowns before coming out profitable at the end and most traders won't be able to stomach that (me being one of them).

All I'm saying is keep going. As I noted: I know a lot about this and all of Wilder's other 'offerings'. The man is a technical genius in my opinion. But market behaviour HAS changed since his day. Even commodities (which by the way is all Wilder traded and sometimes Gold and Silver) don't trend the way they used to back then and are just as choppy or volatile as something like GBP/JPY on a bad day.

That's my opinion on your refreshing new approach to what really is a good indicator (actually it's NOT an indicator i.e. it's a trading system called 'The Parabolic Time/Price System').

Once you're done tinkering around with this you should take a look at Wilder's Volatility System and see what you may be able to do with that. It's almost the same principle as Parabolic SAR except that the SAR is based on volatility i.e. it will move closer to price during periods of low volatility and further away during periods of high volatility but essentially the principle is the same. It's also a true stop and reverse system i.e. 'always in' and highly effective IF you have the patience to hold onto a trade for sometimes a VERY long time. And Wilder, unfortunately, didn't go into great detail when it came to managing risk with the Volatility System but I've worked around that. Given your insights you may be able to 'see' something else. You know: nothing wrong with a 'fresh set of eyes'!!! LOL!!!

Regards,

Dale.

[KingKaivar]

The NUMBER ONE thing you must do if you insist on taking this “strategy” forward is to incorporate a TREND FILTER. Parabolic SAR will fail by design in a ranging market on the smaller timeframes. Working with M30 helps (a little) but doesn’t address the fact that price will move A LOT in the opposite direction before the Parabolic SAR reacts (again by design - SAR flips over when price hits the SAR dot plotted on the chart).

Also, it would be prudent to refrain from using this strategy BEFORE the open of the Euro Session and AFTER the closing of the American Session.

The “strategy” is flawed and WILL expose you to major drawdown at times (especially in a range) however with diligence and discipline you might just be able to extract consistent profitability - primarily because you somehow worked out that there is “something” to using M30+. You’ll be making pips while the M15 SAR agrees - if the M15 starts to disagree - work to protect profits as moderate momentum could require 2 to 5 disagreeing SAR dots before the M30 flips over - strong momentum breakouts will flip the M30 SAR within 1 or 2 disagreeing M15 SAR dots and a spike will potentially flip the current M30 SAR dot immediately.

This is what I’m looking for. Thanks modernmystery. I chose the 30min timeframe since this seems to be where PSAR seems to start functioning “properly” but I also wanted a quicker timeframe than the daily chart to earn those pips earlier and take advantage of compounding. As you pointed out, this method is susceptible to massive downswings since you taking on a 2:1 risk:reward ratio at the start of each trade. Consecutive losses will really hurt. I’m sure there is an optimal risk:reward ratio then the arbitrary 2:1 that I plucked to test with. My original intent was to see if this “strategy” worked on a brain-dead level, and as you’ve pointed out, could do with improvements. Any further feedback would be appreciated.

[KingKaivar]

Thanks Dale! I’m gonna tinker with this “strategy” some more today and grab more data. I too noticed that if you waited for a PSAR crossover for TP, you’re missing out on alot of pips or, in many cases, turning a once-profitable trade into a losing one. Setting TP as 0.5SL is a medium-term “scalp” if that makes sense, lol. But I am sure there is an optimal TP that will better balance the risk:reward ratio.

[dpaterso]

Good (Saturday) morning.

Well just an idea (‘stolen’) from Boris Schlossberg and Kathy Lien’s ‘RSI Rollercoaster’ trading system: start with two lots, set your TP equal to your risk and the moment your TP is hit you move your stop to breakeven. From there: you’ll either get stopped out at breakeven or, if the Parabolic SAR trend continues, you cannot lose on the trade and just keep moving your stops as you would normally with Parabolic SAR. Just an idea that came to mind (I’ve not even looked at a chart to see if it’s viable or not but maybe something to think about)???

As for a trend filter: Wilder himself says to use ADX. Once again though: ADX lags BAD and messing around with the ADX period doesn’t really make any difference in today’s markets unfortunately. But to be honest: I never stuck with Parabolic SAR AND ADX long enough (in SPITE of that LONG thread of mine) to see if there was merit in it. The problem here is who am I (or anyone else) to argue with ‘the old man’ while at the same time market behaviour (volatility) is different from what it was in 1978 (that’s when Parabolic SAR was ‘unleashed’ on the world)!!! LOL!!!

Not to give you too much ‘psycho babble’ but another common trap that’s easy to fall into when attempting to create a trading system is to try to capture EVERY SINGLE LAST POINT (well PIP in this case). This statement made also from experience. Again: it can drive you to the ‘nuthouse’ if you’re not careful.

And you may or may not have seen my thread on Wilder’s other book (published a few years later) called ‘The Adam Theory of The Markets’. My advice: download it and read it. Not so much for the ‘Adam Trading Method’ or ‘Adam Trading System’ (which I’m currently ‘playing with’ but more for the fun of it than anything else) but for Wilder’s other insights (and if you do do this then just keep reading until the end i.e. by Wilder’s own admission the beginning of the book may be ‘boring’ or whatever word he used but his ideas and insights are invaluable). The book is also available for download on my forums.

Sorry about giving you all this (possibly) off-topic information but I don’t know anything about you or how much experience you have or not. If you’ve been at this for a while then who am I to interfere and ‘taint’ a nice fresh ‘take’ on something ‘old’ but that has ‘stood the test of time’. But other traders should find some of this stuff useful and definitely accelerate their shift from consistently losing money to consistently making money which, after all, if what these forums are for.

Regards,

Dale.

[KingKaivar]

Not to give you too much ‘psycho babble’ but another common trap that’s easy to fall into when attempting to create a trading system is to try to capture EVERY SINGLE LAST POINT (well PIP in this case). This statement made also from experience. Again: it can drive you to the ‘nuthouse’ if you’re not careful.

Completely agree! That was one of my first mistakes. I’ve only been demo trading for a month and found this to be one of the biggest “leaks”.

Anyway, I spent half of my weekend doing some more backtesting. I tried to find the “optimal” SL:TP ratio when using the PSAR indicator. I compiled three months worth of backtested trades which gave me a median of 1.2:1 (or TP = 0.83SL), and a mean of 3:1 (or TP = 0.33SL). That is a HUGE difference due to the effect of outliers on the mean. I omitted those that seemed outrageous and skewered the average dramatically e.g. a trade that gave me a 100:1 SL:TP ratio.

I did two more backtests for the whole of August 2010 and September 2010 comparing the two different TPs with my original TP of 0.5SL. Here are my results.

[B]September 2010 EUR/USD: TP = 0.5SL versus TP = 0.83SL[/B]

(TP = 0.5SL)
Nominal Profit: 100 pips
Win %: 64%
Number of trades: 89

(TP = 0.83SL)
Nominal Profit: 67 pips
Win %: 48.3%
Number of trades: 89

If I skip every trade following a loss, the results become:

(TP = 0.5SL)
Nominal Profit: 149 pips
Win %: 65.7%
Number of trades: 67

(TP = 0.83SL)
Nominal Profit: 51 pips
Win %: 51.7%
Number of trades: 60

[B]August 2010 EUR/USD: TP = 0.5SL versus TP = 0.33SL[/B]

(TP = 0.5SL)
Nominal Profit: -1 pip
Win %: 62%
Number of trades: 92

(TP = 0.33SL)
Nominal Profit: 119 pips
Win %: 76.1%
Number of trades: 92

If I skip every trade following a loss, the results become:

(TP = 0.5SL)
Nominal Profit: 150 pip
Win %: 66.7%
Number of trades: 69

(TP = 0.33SL)
Nominal Profit: 199 pips
Win %: 77.6%
Number of trades: 76

I will probably need to test at least two months with TP=0.33SL to confirm if it is superior than TP=0.5SL. I suspect it is since it’s a far more meaningful number than TP=0.5SL which I plucked out of thin air.

modern spoke of using a trend filter which I will also hope to start testing this week. In some ways, skipping a trade after a loss is a defacto trend filter. Almost every time I do this, my results improve.

My other concern is if 100 pips is sufficient profit per month. There’s another thread on this page that claims to make 1,500 pips per month. That puts my 100 to shame, lol (with seven months worth of backtesting with TP=0.5SL, my average is around 130 pips per month after spread). :28:

[dpaterso]

Hello,

Nice to hear from you and see all the work you’re putting into this. I wish I’d approached things the same way when I started out!!! Me: I simply ‘jumped in at the deep end’, after demo trading for about a month, decided that Parabolic SAR looked like ‘just the ticket’, promptly started my ‘Parabolic SAR - that’s all!!!’ thread, thought that everyone else was just making things too complicated, and, well, my ‘history’ is WELL documented (and it ain’t ‘pretty’ either)!!! LOL!!!

What I find interesting though is this (only thought about this now while reading your post): one of the Turtle Trading System rules was to skip a trade after a profitable trade (or it could have been the other way around i.e. I cannot remember but the system rules are on my forums as well as all over the Internet). So it would certainly appear that doing that does give you SOME common statistical edge. Odd isn’t it.

Oh and don’t worry about the number of pips and compare your potential pip gains to that 1 500 pips per month thread (although I do have it on very good authority that that’s a very good thread and trading method). Bear in mind there’s a lot of other things to consider when comparing systems. As but one example: your system could allow for you to be trading far bigger lots than a another system that makes far more pips but the lot sizes are smaller because the stops are further away. That type of thing (assuming the same risk per trade that is). It’s quite funny really: the FULL title of Wilder’s book that I’ve been ‘banging on about’ of late is actually ‘The Adam Theory of Markets or [B]What Matters Is Profit[/B]’!!! LOL!!!

Regards,

Dale.

[Buckscoder]

Sorry to stumble in here, lol. One of my systems use a sar value. Anyhow, that is not the reason for this post. I just stumbled across an idea. Maybe it seems obvious and infantile to some lol, but I now (finally after 2 years, lol) recognized that the sar must be the best indicator to catch trends, because trends are parabolic in it’s nature. So, you just have to find out if the market is trending and if so the sar should give you a very good stop value while the trend is active. I mean, there are several other indis out there which suggests to use as stop indicator, but them are all not parabolic, imho. Only difficulty then is to find out if the market is trending or not and if it is to use the sar and if not then to use something else.

[dpaterso]

Hello Mr. Gecko.

I’m SURE the thread starter doesn’t mind you stumbling in here!!! LOL!!!

Take a look at the graphic (I don’t know why I bother having my forums)!!!

(Note 1 and Note 2 depicted on the chart)

Note 1:

Note where Wilder enters i.e. it’s NOT simply on the close when the first dot appears above or below the supposed signal bar. My interpretation is that his entry is based on a close above the high of the very FIRST bar shown on the chart and I’m willing to bet that that very first bar on the chart is actually the middle bar of a Swing Point. That’s what my interpretation and ‘tweak’ is based on and you’d be surprised at how many bad Parabolic SAR trades it keeps you out of. In other words: I’d wait for the Swing Point to form and on this chart I’d place a buy stop order ‘a couple of ticks (pips)’ above the signal bar. And the same I would apply when stopping and reversing i.e. I’d not simply stop and reverse based on Parabolic SAR but wait again for a Swing Point to form and so on and so forth.

Unfortunately: this chart contradicts the text in the book (athough it agrees 100% with the worksheet on the accompanying pages).

Note 2:

Note how a correctly calculated Parabolic SAR actually moves i.e. it doesn’t simply accelerate ‘blindly’ and in a straight line. It will never move back on itself but it will slow down or speed up depending on price movement.

And when you find an indicator (or anything else) that can indicate the beginning of a range within three bars of its beginning and the beginning of a trend within three bars of its beginning PLEASE send it over this way!!! LOL!!! My entry method as described above pretty much keeps you out when the market is trading in a range. Like anything: it’s not foolproof and can come at the cost of getting into a trade late (later than you would normally have using the ‘generally accepted method’ of using Parabolic SAR) but as I noted with this indicator it’s not how many spectacular trades you do it’s now many bad trades you avoid that reduces the possible MEGA drawdowns.

And this is a new ‘take’ on Parabolic SAR anyway i.e. not relying on Parabolic SAR to dictate your TP. It reminds me of a comment made by John F. Carter in ‘Mastering The Trade’ that went something along the lines of ‘entries are a dime-a-dozen but profit is in the exits’ (or it could have been Larry Williams. If so: sorry Larry my good man). But it’s true. As a matter of fact (I’ll bet not even HE remembers posting this but I do remember): our VERY OWN TalonD once noted in a post that trades INITIALLY ALMOST ALWAYS move into profit but hold them too long and they turn to losers (something along those lines anyway).

But it depends on your trading system and style of course. You know that Wilder’s Swing Index System is my ‘thing’. The ONLY improvement that could be made to that system would be if one could be a little more sure whether the ‘general direction’ of price was GOING to be up or down (not necessarily whether there was a trend or not) for a given period of time. With that type of information one would trade it NOT as a true stop and reverse system but trade it in the ‘general direction’ and simply use the Swing Points as stops instead of stopping and reversing as this would eliminate the many whipsaws inherent in the system. That’s why I’m ‘mucking about’ with this ‘Adam Theory’ to see if there is any merit to it. If there is: it would impact on any Parabolic SAR based system too.

But there is one more thing to consider: some instruments (no matter in which market) ‘tend to trend’ better and for a longer period of time than others. I know why every FOREX trader is ‘drawn’ to EUR/USD i.e. it’s mainly because of the spread. But that doesn’t mean it’s the ‘best trending pair’. I can tell you that if I had to trade EUR/USD on the 1-hour timeframe using Wilder’s Swing Index System I’d get ‘chopped to death’ in a matter of hours. But on some of the ‘calmer’ or ‘less popular’ pairs (normally the exotics): well it would ‘stand a chance’ BUT because of the spreads you’d never make any money unless you were trading on the daily timeframes and longer. It’s ‘horses for courses’ (I think that’s how the saying goes)!!! LOL!!!

But anyway (as usual) I’ve gone off-topic again!!! LOL!!! Sorry.

Regards,

Dale.

[Buckscoder]

Hello Dale!

Just another idea from me, what I had a little while ago: You could also try to enter at the second swing. That would be a really low risk high reward entry imho, because the pa is close to the sar value. Sure it could shoot through, but then the trend is over anyways and the risk is very low and your loss tiny. If it goes up, however, it should make a lot of pips. It’s also a little like the supply demand trading some “naked” folks use. Waiting for a second chance to trigger a trade at a former s/d level. You just need to take care that it is not too high or late in the trend.

Regarding eurusd I am sure there are better trending pairs. However, another reason for choosing the eurusd is liqui. I with my micro lots right now probably won’t have any issues to get filled, lol. Albeit if my account grows, it could become an issue. So it’s not just the spread in my case.

[dpaterso]

Good morning Mr. Gecko.

As always: great insight (and I know that YOU know what you’re talking about) so something else for KingKaivar to think about although as I noted it’s nice to see somebody taking a new look at an ‘old favourite’ especially in the manner that he is doing so.

Your entry method would have ‘cost’ some pips on that same chart. And so would mine. No question about that. In other words: just about everybody on the planet would have gone long at market the moment the first dot at the bottom appeared and the bar had closed. But that’s why Parabolic SAR is so deceiving i.e. it always LOOKS so ‘easy’ when traded that way. But unfortunately: FAR too often (especially nowadays) the trades don’t ‘pan out’ QUITE as ‘perfectly’ as the one shown in the chart. So WE (you and me) would have made far less of a profit on that same trade. But WE would, more often than not, avoid getting into the next BAD Parabolic SAR trade (or series thereof), using either of OUR proposed entry methods.

KingKaivar is approaching the entry differently but taking profit early. NOTHING wrong there either I don’t think. He has also found that skipping every second trade seems to give him a statistical edge. So you never know: maybe all of this will result in a decent trading system that’s simple to follow and is his own creation. And as I noted: it’s not the number of pips that’s important its’ the amount of $$$ that’s important!!! LOL!!!

One thing I’ve never really EVER ‘gotten my head around’ with Wilder’s systems: just about every one of them will have you enter on an INITIAL breakout (that’s REALLY what you and I are talking about here). But they are ‘true stop and reverse’ or ‘always in’ trading systems. That’s never quite made any sense to me. In other words: it’s like saying that you’re almost sure that your entry is going to be good but when required to stop and reverse on ANY stop and reverse signal you must ‘just go for it’. There’s a big difference there because it would make the difference between simply stopping and reversing or just stopping (taking profit) and then waiting for the next breakout (if that makes any sense to you the way I’m explaining it). With his Swing Index System I use the ‘just go for it’ method but I do get whipsawed a lot on the shorter timeframes. But with all of his systems: he pretty much says to stop trading them after two or three consecutive losses and wait for the next breakout. So even HE realises (realised???) that there IS a difference.

Regarding your comment ‘take care that it is not too high or late in the trend’. I’m afraid I have to ‘call you’ on this one!!! LOL!!! FAR be it from me to question YOU but if you’re interested DO take a look at some of Wilder’s input on this VERY same subject in ‘The Adam Theory of Markets’. Put it this way: there are two ‘demons’ that used to ‘plague’ my trading (and to a far lesser degree now still do I guess). One being that I have a ‘long bias’ (although that seems to have all but gone now) and the other is exactly that i.e. ‘it looks too high’ or ‘it looks too low’ or ‘it looks cheap’. I cannot tell you (even in my ‘bad’ years) how much it cost me by not buying something because ‘it looked too high’ or selling something because ‘it looked too low’. When I say ‘cost’ I mean that I missed trends that went on and on for weeks!!! I was (am) a trend trader and yet I was always looking for a reversal of the trend!!! Without realising it that’s exactly what I was doing all of the time!!! LOL!!! Alright there is ONE THING that’s VERY important to note here: I’m talking about equities and commodities and metals here and NOT FOREX. There I believe is ONE important distinction that must be made and where you are probably quite right (and as I always note one must remember that Wilder was a commodities and metals only trader). Put another way: the probability of Bank of America getting to $8 is FAR FAR higher than the probability of EUR/USD going to 2.0000!!! The same would apply to Gold (as you well know) and any commodity. So yes: with FOREX there may definitely be a ‘too high’ or ‘too low’ (which is probably yet another reason why I’ve ‘distanced’ myself from trading FOREX pairs)!!! LOL!!!

By the way and just so that we’re clear here though: my comment regarding EUR/USD was by NO means directed at you (or anyone else that ONLY trades EUR/USD). The point I was trying to make though is that the following appears to be most new FOREX traders’ thought process: find a broker that offers the lowest spread on EUR/USD and ‘just go for it’ SIMPLY because that is what EVERYONE ELSE appears to be doing. In other words: very little thought (it would seem) is put into the possibility that maybe, JUST maybe, EUR/USD is the not the ‘ideal’ pair to be looking at with their trading system of choice. It’s almost as if everyone is ‘hell bent’ on saving a pip or two on the spread (because allowing a broker to make some money for their trouble is a definite ‘no-no’) but trading a trading system that may very well be WAY more profitable over time trading a pair that has a 20 pip or even a 1 000 pip spread!!! See what I’m getting at???

Anyway: ALL have a great day (although most of you are still asleep I would imagine)!!!

Chat later.

Regards,

Dale.