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
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’ - [I]J. Welles Wilder - New Concepts In Technical Trading Systems[/I].
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.
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.
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
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.
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
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.
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
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.
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.
Hi,
Ok - well - I have not done the math - but I really think that the reason that this is working so well for me is purely because of the number of pairs that I have open at any one time. What I’m saying is this: with that kind of money I would open an account at Delta Stock purely because you could buy lots of 1000 units (I suppose that lot size would be equivalent to mini lots - my lot size is set to 100000) on quite a few pairs and for some or the other reason (I know there is a mathematical explanation to this) the cost of a lot i.e. the amount of margin used is NOT a fixed amount i.e. it differs per pair whereas at my other two brokers - one is $50 per position minimum - and the other one is $1000 for one full lot (or $100 for 0.1 lot). The point is - at Delta - I am able to afford to open many more positions on different pairs than at the other two. Basically - from what I gather - at the other two brokers - you buy a fixed amount of currency - whereas at Delta - the amount of currency that you buy is dependant on the amount that you wish to spend. I don’t quite really know how to explain it in words correctly. My leverage at Delta is 200:1 (I think) i.e. margin percentage is 0.5%. I hope that makes sense.
Edit:
Put it this way: at all the brokers I have laid out about $11K to make the $20K (it’s back again by the way as I type - I so excited I could throw a party - taking everything I have to not close out) so - I’m figuring - with your money - just take off a zero i.e. approximately $1K should be making $2K right at this minute (by the way I have thirteen pairs / postions open at the moment).
Regards,
Dale.
Good morning,
Now - fourteen pairs - $31437.71 profit!
Dale.
Hi Dale, how are ya? I think you might be doing so well at the moment due to a week long heavy trend. I missed the boat and am too cautious to jump in now. But well done to you!
Hi,
Yes - that’s what I’m afraid of!!!
What kills me is the pairs that I missed out on and was too scared to enter late e.g. AUD/CAD, AUD/CHF, AUD/NZD - I mean - I cannot believe the ‘conviction’ of these moves but I only started with this thing again yesterday or the day before and was not watching last week - TO BUSY MESSING AROUND WITH MACD!!! UUUUURRRGGGHHHH!!! WHY!!!
You know - this business could very well make one go nuts!!! I mean - what I have made so far is the best I’ve ever done at any one time (and would sure go a long way toward covering a small portion of the losses that I’ve made since starting out about seven or eight months ago). What do you do? I’ve started looking at the four hour charts to get out earlier on some of these positions where the profit figures are ‘magical’ given the amount of time that these positions have been open. Then - you start saying to yourself: ‘Remember what happened the last time you tried to mess with this indicator and get smart’. I mean - since yesterday I’ve been keeping myself from bailing out but did not and now today I’m over another $10K to the good (actually $14K as I type). I know it’s a lot of money especially in ZAR terms (x 7) but at what point do you say to yourself ‘OK - this does not happen every day - and Parabolic SAR in the long run will make many $$$ even if when you first get in your initial profits per pair are not so great’? Then of course there is the way that the world markets are going south as it would appear that the more stocks fall the better the profit on the pairs that I do have open positions on. Then you say to yourself ‘Based on Parabolic SAR these positions still have a long way to go before a stop and reverse’. Then you say to yourself ‘can these ???/JPY pairs REALLY reverse in such a violent manner so as to wipe out all of the money on the table’? I mean - can they? Put it this way - I would feel a whole lot better if my PSAR stops had reached that point where profit was locked in because at the moment - if all of these pairs reversed ‘violently’ - that would be the end of my good fortune I can tell you!!! I mean to say - the S&P closed yesterday below a very key level - there are people on Bloomberg talking about the JPY strengthening to multi year highs etc. etc. (and I know I should not be even watching Bloomberg right now but looking for direction and not sure where to get it other than rely on Parabolic SAR).
Regards,
Dale.
I’M SORRY PEOPLE!!!
I closed the positions!!! Sorry!!!
About an hour ago I was a few USD shy of $50K - and I just figured that I’ve lost so much since starting out - that I at least deserved this!!! To be honest - it will be the first time I’ve been able to take out some serious money and be able to pay some bills from my trading. Of course - I now have LLLOOOOOAAAADDSSSS of margin to start again with so - if anybody is interested - I’ll start again - and keep posting the progress - although I don’t think it will be as ‘explosive’ as this round.
One thing I do think would have stood me in good stead was to flip to the four hour charts for the positions that I had open - get out when the four hour reversed - and then get back in on the daily again when a new PSAR signal (or dot) appeared. I don’t know if that makes sense but I did start to notice that on some of the positions the four hour charts gave me the sense that some of these positions were ‘teetering’ on a reversal.
Sorry - I really did want to prove PSAR to its logical end - but $50K is nothing to be laughed at. Why does that statement not make me feel good!!! Would a ‘professional’ trader have done what I just did???
Dale.
I tried the method that is dicused here, and I lost approx. 10k in 2 days… I just want everyone to be aware of that… Be very cautious… If something is too good to be true, it normally is.
Hi there,
mraugustyn:
I’m sorry to hear of your misfortune (although I’m down a hell of a lot more than that but I do know how you feel). Let me state though - that none of my losses are due to the CORRECT use of Parabolic SAR - I have ONLY had good results.
One thing I would like to request from people posting negative comments about Parabolic SAR:
If you lost money using this indicator then would you please give us a little more detail as to how and why and what the circumstances were at the time? Maybe even some charts?
The reason I ask is because there have been at least two negative reports or comments on this thread but with no clarification whatsoever and this is not helping anybody (no offense). If there is a serious flaw in this indicator then I’m sure we would all like to be made aware of it. From my perspective - I’ve tried using this indicator on its own - and on the two or three occasions that I have done this is the past six or seven months it has always turned good profits (even although I’m a ‘chicken’ and bail out early WHEN I SHOULD NOT HAVE)!!!
On the other hand I do think that it is unfair or wrong of me to be posting the monetary value of my profits on this thread. Yes - I’m lucky to have a lot of reserves and have been very lucky to be able to take the huge losses that I have incurred in the past six or seven months and still be here to tell the tale - but the figures that I made this time around I do know and feel are inflated because of the huge volatility and uncertainty in the Global Markets - so if you are new at this - don’t think that this is going to happen everytime - I think that this week was really just a matter of getting in at the right time (I’m not so sure that I got out at the right time though - yes - I’m still kicking myself right now)!!!
Basically - I do believe that this indicator just HAS to produce profits over the long term i.e. if you stick with it and don’t give up the moment you incur a loss. From my perspective I don’t see how it cannot turn profits. It has to be the most simple and mechanical of all of the indicators around and leaves very little to trader ‘intuition’ which has been my downfall all along.
Remember: it was designed so that you are ‘always in’ the market i.e. stop and reverse and I have a feeling that this is where the bad results stem from i.e. attempting to use this indicator with not enough margin to be able to take the inevitable losses that WILL occur from time to time and then either giving up or having to give up because you’ve run out of cash. If there are any other reasons (and we all know that it will not do well in a ranging market although this should not result in HUGE losses anyway) then please let us know.
In a crass attempt to keep me away from my trading platforms today i.e. until I get some new PSAR dots appearing indicating a reversal of my good fortunes this week I have decided to compile a nice little ebook or something like that called ‘My Parabolic SAR Secrets’ (I hate it when people call things ‘secret’ don’t you)? I’ll post it as an attachment here (free of charge of course)!!! No - seriously - there are a few ‘little’ things about this indicator that I have noticed and that I would like to share and get input on so I’ll get to it sometime today.
Anyway - like I said before - if you have had bad results or lost money using this indicator on its own - then please give us details if you don’t mind. I’m not and expert on this indicator nor am I am ‘expert’ or ‘professional’ trader so I could be missing something here and I (and everyone else following this thread) would really like to know what the possible pitfalls are.
Actually - that’s a good point: at what point do you become a ‘professional’ trader??? I do this for a living - does that mean I’m a ‘professional’ trader??? I have read some books on trading you know!!!
Regards,
Dale.
what kind of stop-loss do you use?
Hi,
As explained before:
Your stop loss (which should actually be a stop and reverse point not just a stop loss) is set to the current value of Parabolic SAR i.e. the current price of where the current dot is appearing and it (your stop loss value or rather the value of your stop and reverse point) is moved or updated on a daily basis (assuming that you are trading using daily timeframes) to the new value of Parabolic SAR i.e the current price of where the new dot is appearing. If all goes well you will eventually get to a point where profits will be locked in i.e. your stop loss value (or stop and reverse point) will be greater than the opening price. When your stop loss is hit (or your stop and reverse point is reached) profit is automatically taken and the position is reversed and so on and so forth.
This is Parabolic SAR in its purest form.
DON’T ASK ME THIS QUESTION AGAIN!!! Only kidding - but if you’re asking this question then you could not have read the entire thread and believe me - using this indicator ‘blindly’ i.e. without the little ‘tidbits’ of information contained in this thread - WILL results in losses if you don’t understand it and its design and then you’ll be posting one of those ‘this indicator does not work and is crap and . . . and . . . and . . .’ messages and then you’ll be thinking of sueing me because you lost money (actually - don’t bother - I don’t have money - rather sue Mr Wilder)!!!
Regards,
Dale.
OK - well - here are MY Parabolic SAR ‘Tips and Tricks’. Actually they are my personal observations more than anything else. Please feel free to add or comment.
Ideal Entry Point
Even although you are supposed to enter the moment a new Parabolic SAR Dot appears indicating a reversal some entry points are better than others.
Through observation I have found that the closer the new Parabolic SAR Dot is to the opening price the better. When the Parabolic SAR Dot is close to the opening price your stop loss (or rather stop and reverse point) is a lot closer to the opening price so if the price does go against you and you are either stopped out or you stop and reverse your initial loss is a lot smaller.
This does of course have its drawback i.e. you could get ‘whipsawed out’ by a small or sudden fluctuation in the price i.e. a ‘spike’ in the wrong direction which would probably be mainly due to news data. If this is the case I would reopen the position instead stopping and reversing. Here unfortuanately a little bit of ‘personal judgment’ is required.
(See attached chart below).
Spread
Parabolic SAR seems to work with any tradeable instrument. Watch out for instruments with a high spread. You have to remember that instruments with a high spread need to cover a lot of ground i.e. the price has to move quite a bit before even the cost of the spread is covered let alone put you in a profit situation.
I have had success with high spread pairs e.g. ???/ZAR but I would be cheating if I did not tell you that with ???/ZAR for example I do look at other things before entering a position e.g. with ???/ZAR I look at the ‘state’ of Parabolic SAR on Gold because I know that the movement of ???/ZAR is directly related to the movement of Gold. This ‘rule’ would also apply to ???/NZD and ???/AUD etc. etc. (the ‘Commdolls’). On the other hand - if you can get away with this and things go in your favour price wise - the payout of high spread pairs is normally ‘magical’ (as are the potential losses of course).
Another thing that helps me here is the fact that at the broker where I trade ‘forex only’ I open and close my positions using their Level 2 platform. The spreads are variable and are always tiny compared to the spreads at my other two brokers and sometimes there is no spread at all on the major pairs. This makes a huge difference when it comes to the high spread pairs as well i.e. the high spread is not that high if that makes sense.
Late Entry
While I have gone to great lengths in this thread to discourage myself and others to refrain from opening positions late i.e. when there is already more than one Parabolic SAR Dot being displayed I have noticed that it is possible to open positions late when the current price is equal to or better than the price of the instrument was at the time that the very first Parabolic SAR Dot appeared. The benefit of doing this is that once again the difference between the value of your stop loss or stop and reverse point and the price at which you are opening the position is far less than it might have been had you entered when the very first Parabolic SAR Dot appeared. It also has the added benefit that at this point you can be pretty certain that a trend has started. The drawback of course is that if you wait for these late entry points to present themselves you may get into very few trades and miss those trades that start trending almost immediately from the get go.
(See attached chart below).
Parabolic SAR ‘Beauty’
The ‘beauty’ of this indicator is that it does not seem to care about fundamentals, technical analysis, or the current state of the market on the longer timeframes i.e. Daily and longer. On these timeframes you are (almost) immune from ‘spikes’ caused by news data etc. etc.
Timeframes
The amount of profit / loss that will result from the use of Parabolic SAR is in direct proportion to the length of the timeframe being used. While Parabolic SAR will work on any timeframe I have observed that the shorter the timeframe the smaller the profit / loss and on the shorter timeframes the loss seems to (in most cases) exceed the profit unless you are really lucky and get into a long and ‘violent’ trend which does not happen very often. In addition to this, as previously stated, your are far more vulnerable to ‘spikes’ normally caused by news data etc. etc.
Parabolic SAR and MACD
While this is not ‘pure’ Parabolic SAR you can certainly protect yourself from ‘whipsaws’ by using something like MACD (please don’t tell me that this is like Jame’s 30 Minute Parabolic SAR and MACD EUR/USD System). I use Parabolic SAR to open a position (‘pure’ Parabolic SAR) and will monitor MACD if and only if a new Parabolic SAR Dot appears in the opposite direction indicating that I should stop and reverse BUT my ‘gut feel’ tells me that this is just another ‘spike’. I will then use MACD to ‘filter out’ the false stop and reverse and hold on until MACD actually crosses in the opposite direction before actually stopping and reversing. While this is not necessary when using ‘pure’ Parabolic SAR it may very well save you from falsely opening and closing or stopping and reversing more than is necessary thus saving you commission or the cost of the spread.
Multiple Instruments
The 100% success that I have had so far with Parabolic SAR has been largely due to the fact that (with forex) I trade at a broker that has forty four pairs available for trading at present. Each morning I check the daily chart of each and every pair and do one of two things: I either open a new position if there is a new Parabolic SAR Dot appearing indicating a reversal or I adjust my stop loss or stop and reverse point based on the new value of Parabolic SAR for that day. From my experience almost all of the open positions / pairs show a profit almost immediately and the ones that show a loss from the get go are negligable in relation to the ones that show a profit. The basic theory behind this practice is that the more positions / pairs you have open the less likely it is that every single position that you have open will go against you and the nett result of all of the open positions will be a profitable one. The only important thing to remember here is that you need margin - loads of it - and my margin I mean ‘free margin’ not just starting capital. You have to be able to take the losses which are inevitable when using this indicator in order to ride the profits.
SMS / Email Alerts
The proprietary trading platform of the broker where I trade ‘forex only’ will automatically send you an email message within a few seconds of the execution of a stop order or limit order telling you that the order has been executed and at what price (and what the current price is at that very moment). I have these messages routed to my mobile phone. This works like an absolute dream i.e. I check the daily charts each morning and adjust my stop losses or stop and reverse points based on the current value of Parabolic SAR (as detailed above) and close the trading platform. Should my mobile phone alert me that a stop order has been executed or a stop and reverse point has been reached I am made aware of the fact almost immediately. With this broker WAP (at no charge) is offered so I can be anywhere anytime and I can immediately login and observe the current situation and either perform a stop and reverse or opt to wait until a new Parabolic SAR Dot has appeared the next day as confirmation etc. etc. The ‘beauty’ of having this facility is that it ensures that you ‘stay away’ from the trading platform and don’t get ‘cold feet’ when it appears that price is going against you (this ‘action’ has cost me a lot of money in the past). As long as my mobile phone does not give me an SMS alert I know that I’m still in the trade and price is going in the right direction. This is phsycologically ‘calming’ and, in my case, allows me to concentrate on stocks without having to worry about my forex positions.
Altering Parabolic SAR Parameters
It is possible to alter the parameters of Parabolic SAR. I have not based any trades on modified Parabolic SAR parameters and am currently investigating the pro’s and con’s of altering the default parameters. So far I have found that it is possible to modify the default parameters in order to make the indicator more ‘sure’ as it were and it appears that the success of the modifications are particular to the instrument concerned. In other words the default parameters will work with all instruments to a greater or lesser degree but you could, for example, ‘fine tune’ the parameters of Parabolic SAR to suite GBP/JPY or the Dow or the DAX for example. The idea is to modify the parameters of Parabolic SAR for each particular instrument so that ideally the signals given get you in as early as possible, get you out as late as possible, and keep you in the trend for as long as possible. Like I said - this is a long term study I think - and something which I am certainly looking into for the moment.
I have noticed that not all representations of Parabolic SAR are equal i.e. I trade at three different brokers. The representation of Parabolic SAR at two of them is almost always identical (on a few occasions give or take a dot or two) while at the third I receive many more false signals which result in ‘whipsaws’. So far I have managed to make the representation of Parabolic SAR at the third broker almost identical to the representation at the other two brokers.
I have also noticed that you can ‘tweak’ Parabolic SAR for different strategies e.g. do you want to open a position and stay in a very long term trend or do you want to trade much shorter timeframes and ‘scalp’ the market.
Caution should be used when modifying the default paramaters however as there is a definite tradeoff between ‘getting in early’ and then losing more profit when the reversal comes.
Please note that ‘tweaking’ Parabolic SAR and shortening the timeframes has never worked for me. Also remember that when this indicator was developed by Mr J. Welles Wilder they were trading manually i.e. no computers, realtime data, etc. etc. like we have today so the plotting of Parabolic SAR was done at the end of day on graph paper so that tells me immediately that this indicator was designed and tested and is optimized for the daily charts.
Falsely Stopped Out
Another observation is this: assuming that you are, or rather have been, in a lovely trend and have now just been stopped out. ‘Pure’ Parabolic SAR dictates that you would immediately stop and reverse at this point. On more than one occasion I have noticed that it is better to wait for the next day (again assuming that you are basing your trades on the daily charts) for a new Parabolic SAR Dot to appear in the opposite direction before opening the stop and reverse position. Too many times I have noticed that sometimes you get stopped out due to a price ‘spike’ (I did say before that you are ‘almost’ immune to ‘spikes’ but not always) and then the price continues on in its former direction. In this case I would do nothing and wait for the next day (assuming daily charts once again). Sometimes (the next day) a new Parabolic SAR Dot does not appear and the price continues on its merry way as before and usually ends up trending for days.
Conclusion
These are all the ‘little’ things that have ‘come to mind’ over the past couple of months (off and on) and by the looks of things there are many more ‘quirks’ to this indicator to be uncovered that could make it an even bigger ‘winner’. This could very well become a ‘study’ I reckon (and some people wondered why Bill Williams and the like write books about trading and share their knowledge - I’m not even getting paid for this)!!!
All jokes aside - this indicator seems to work well for me for the simple reason that it relies very little on my limited knowledge of the market and trading and is pretty much ‘purely mechanical’. It tempers my emotions i.e. I am (and probably will always be) the kind of trader that cannot stand losing money and am inclined to bail out of a trade the moment I ‘feel’ that I cannot take any more loss on a position and on almost every occasion that I write the loss off I find myself wanting to jump off something high because I took the loss based on my so called ‘instinct’ and the price has retraced and had I not taken that loss I would have made money instead of losing it and slowly but surely ended up reducing my capital and available margin, wiped the account out, and then had to fund it again and I can assure you that this has happened several majestic times!!! This indicator also takes the ‘guess work’ out of where to place your stop loss - also good for me.
If there is one thing for certain that I have learned the hard way: trading is not ‘easy’ money - it’s not ‘gambling’ - it’s not even quick money. Probably the most precious lesson that the market has taught me is ‘patience’ and I believe that whether you use Parabolic SAR, any other indicator, or any other ‘system’ - if you are not patient - you will lose money - no question. As an example: I am right now sitting with a single position on the Dow which at the moment is sitting at a $6K loss. Some months ago I would have written this money off and refunded the account. Now I have learned to forget about that loss and keep trading other instruments in the meantime because I do know for sure that it may be next week, next month, or even next year, that the Dow will get back to the level at which I opened this position (OK - I’m fortuanate because at this broker I can still trade the same instrument without affecting any currently open positions on the same instrument) and this position will probably turn a profit eventually. Had I been using Parabolic SAR at the time there is no question that I would not be sitting with this losing position (I don’t trust the Parabolic SAR representation at this broker) but it’s too late now. I believe that the ‘keys’ to using Parabolic SAR, any other indicator, or any other ‘system’ is to ‘stick with it’, don’t give up when you incur a loss or two, and above all, have patience. Specific to Parabolic SAR - I see it as a ‘long term savings account’. In other words - I believe that once you have all of your positions open and you just keep mechanically stopping and reversing day in and day out, month in and month out, and year in and year out, even with the inevitable losses your account balance will slowly grow to an amount to be reckoned with and don’t be put off by the word ‘slowly’ - I can assure you that the growth of your account will put any bank to shame!!!
Cannot continue editing. Limit of 15000 characters reached. Will contact admin to see if they will allow me to continue editing here.
Dale.
