Simple parabolic system

The origin of parabolic system

Parabolic formula was for the first time described by Wells Wilder in 1978 in his book “New Of concepts in technical trading systems”. Wilder searched for the system, which could take the large part of the gain on the trend market, not relying on any external methods of the confinement of incomes.

Parabolic calculations give as a result a series of the servo stoppages, which in the case of act - signal about the turn of trend. Stoppages recount daily (or for each utilized timeframe) and they become nearer in the process of the advance of trend. If trend could not be continued, the sliding stoppage will replace position to the opposite and new temporary period will begin.

In the case of integral use

Parabolic system is the reverse system, which is always located on the market in search of the trend. For its most effective use, it will useful explain nature of different elements, which compose parabolic system.

As we spoke, parabolic system thought by Wilder as reverse. Wilder called the point, on which the system is turned havoc, “stoppage and revolution” (SAR - stop and reverse). Series of points SAR form the line, similar to the line of trend, but which acquires the outlines of parabola, so that holding pointes remain closely to the market. For enumerating first SAR you must select certain starting point. Wilder recommended to return back several weeks on the graph and the to find significant peak or cavity for the beginning of calculations. The majorities of computer studies start on the left side of screen. If the first several days have a direction of grow, formula will assume the ascending trend. If several days pass the first with the reduction, formula will assume the descending trend.

For the practical use it does not have value, in which direction parabolic system starts, because in the final analysis it will prove to be on the side of trend. We recommend to the users of software with the variable width of window to ascertain that the window of parabolic system contains at least 100 points of data. Without these minimum data the first SAR points can determine incorrect trends. When the first point of entry and first SAR are established, formula for subsequent SAR following: SAR (tomorrow) = SAR (today) + AF * (EP - SAR (today))

AF - these are the factor of acceleration, and EP - the point of the extremum (peak or cavity) of the previous trade (EP - extreme point). Note that the price of the previous extremum and the factor of acceleration are used together for the retention of points SAR closely to the trend. The price of the previous extremum EP is completely intelligible. AF is, however, the fact that makes the parabolic system a unique. AF - this is the weighed factor. Wilder used an initial value AF, equal to 0.02. Then AF increases by 0.02 each time, when price creates new extremum, leading to the acceleration of points on the graph. AF does not increase, until is produced new EP, and it never rises above value of 0.20. Thus, the range of a change in the factor of acceleration from 0.02 to 0.20 with a step of 0.02. These are values by default for the majority of software, but sometimes they can be established by user.

A change in the acceleration

A change in the values AF will appear in approximation or distance of stoppages SAR, thus, making the system the more or less sensitive to the motions of market. If AF increases, stoppages approach and system becomes more sensitive. If AF decreases, stoppages are moved away and system is made slower.”