Abbreviation: Parabolic%
Category: Trading Strategy: Protective Stops
Input Parameters:

 
Calculation:

For a long position,

Initial Parabolic% = Entry Price * (100 – Initial Stop Percent) / 100 

Initial Acceleration Factor = Acceleration Step 

As each new high price is encountered,  

If Acceleration Factor < Acceleration Max Then Acceleration Factor = Acceleration Factor + Acceleration Step  

As each new bar occurs 

Parabolic% = Parabolic% + AccelerationFactor * (Last High – Parabolic%) 

If Parabolic% above the prior two periods’ lows, then Parabolic% = lowest of the prior two period lows 

For a short position,

Initial Parabolic% = Entry Price * (100 + Initial Stop Percent) / 100 

Initial Acceleration Factor = Acceleration Step 

As each new low price is encountered,  

If Acceleration Factor < Acceleration Max Then Acceleration Factor = Acceleration Factor + Acceleration Step  

As each new low price is encountered,  

Parabolic% = Parabolic% – AccelerationFactor * (Parabolic% – New Low) 

If Parabolic% below the prior two periods’ highs, then Parabolic% = highest of the prior two period highs 

 
Discussion:

This indicator is useful for creating a trading strategy trailing stop that gets closer and closer to the current price in a parabolic until it finally intersects the current price causing an exit.

Note this is NOT an exact implementation of Wilder’s Parabolic SAR as found in the Advanced Indicator Set 2 as it is not continuosly in the market reversing long and short positions, but instead s only active long and short when the trading strategy is long and short.

Also note that if the parabolic is graphed on the chart, where it has no control over the trading strategy entry and exits, if the price goes below the parabolic in a long position, the parabolic will not follow the price down, but instead remain at a straight line constant at the prior parabolic price level and not increase again until the price goes above the parabolic value. The same is true of a short position, except the parabolic will not follow the price up and won’t go back down again until the price goes below the parabolic.