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J. Welles Wilder Jr. develped the Parabolic study. It was originally used as a stop-and-reverse system, i.e. go long when price crosses above, and go short when price crosses below. This works great in a trend, but is ineffective in a sideways movement. The parabolic also has a built-in acceleration factor so it will catch up the market over time, on the assumption that no trend lasts forever. The parabolic is typically used as a trailing stop, but in its original set up of .02 acceleration, the initial stop loss level is often too far away for most trades and fails to start moving quickly. There are two ways to get around this problem: |
