2ND UPDATE: Parabolic Theory-Based Stock Trading and Some Reflections

Year-to-date Automated Backtest of Spyfrat’s Parabolic Theory using Amibroker (As of 11/12/17)

Updated Year to Date Portfolio Performance using the System

+397.55% Year to Date. Peak return was at 421%. Woosah.
Trade Statistics. Again I still don’t know how to interpret the last part but as you can see, total of additional 4 trades from previous post last August resulting to 17 trades all in all. Batting average of 70.59%.
Trades open and closed by the system following the buy rules and portfolio rules stated in my previous post.

Chronological Review of Trades Executed since Previous Post

For this section, I’ll review the charts of the executed trades of the system, assess the execution and take notes how we could’ve possibly modify our entry and exit points if necessary. Please do note that my discussions are “after the fact” already.

$PMPC +6.27% (8 Bars Held; 8/1/17–8/10/17)

$PMPC Made a buy signal at the EOD break of 9.88 which placed daily RSI parabolic. Sell signal after falling from 10-prd SMA trail.

Execution Review

Buying Points Modification: To maximize fully the play, one could’ve modified his entry point aside from buying EOD when it became a parabolic play.

  1. (Buy on support; EOD Execution). Looking at the reference chart, one could’ve entered a position one bar before the buy signal when it made good reaction candle to the 10-prd SMA. One could’ve assumedthat the market may have to decide soon wether to breakout or breakdown as it is forming a tight consolidation pattern.
  2. (Buy on breakout; Intraday Execution). For those who were able to actually monitor this stock intraday, one could’ve bought at the intraday break of resistance at 9.88 or intraday break of RSI70 at 9.72. I will not discuss anymore how you position size on breakouts but of course you can increase your conviction as you know that if the breakout will be successful, we’ll have a parabolic play.

Sell Points Modification:

3. (Sell on bearish price candle with volume; EOD execution). Given the poor price action on the third day and looking at the volume, for a momentum trader, that is already a sell signal EOD.

4. (Sell on break of pivot; Intraday Execution). For those who were monitoring the trade tightly (which is warranted given the liquidity risk of this specific stock), one could’ve used the opening price (13.2) as pivot or previous close (13.14). Meaning, intraday you execute sell orders as it breaks your pivot support.

My “Perfect” execution: Buy at 1 (9.65) Sell at 4 (13.2) = +36.79%

$MAC +90.14% (37 Bars Held; 6/19/17–8/9/17)

$MAC Made a buy signal at the EOD breakout follow-up candle which placed daily RSI parabolic together with weekly RSI. Sell signal after falling from 10-prd SMA trail.
$MAC Reference Chart

Buy Points Modification

  1. (Buy on price breakout; Intraday / EOD Execution). Can’t say much about how the system executed the trade except that for me, the Buy signal could’ve been one bar earlier. The candle last 6/16 was a breakout candle accompanied with volume. It also closed above parabolic weekly level (which was at that time set at 5.11) which could already be good conviction that a profitable play will happen.

As for the selling point, I’ll discuss my perfect $MAC play execution later after dissecting all the trades.

$TECH +28.65% (49 Bars Held; 8/30/17-present)

$TECH Made a buy signal at the EOD breakout from mini consolidation which placed daily RSI parabolic together with weekly RSI. No sell signals triggered yet.
$TECH Reference Chart

Buy Points Modification:

Actually this is a perfect trade overall and still doing well for now. Maybe for the buy side, AEP could be lower if trade was entered as near as 10-prd MA as possible (buying on (1) support, anticipating breakout / parabolic play). We can see earlier that stock is reacting well to 10-prd MA.

$MAC -5% (3 Bars Held; 8/17/17–8/22/17) and + 13.33% (13 Bars Held; 9/14/17–10/2/17)

$MAC 2nd buy signal was a weak one causing system to be stopped out after 3 bars. Next buy signal was from breakout of mini consolidation after break of 12 high — a little bit late perhaps. Sell signal when it fell from 10-prd SMA. This was accompanied by some Lucio Tan related news.
$MAC Reference Chart

Buy Points Modification: There was a weak buy signal considering the chart structure of $MAC at that time. Traders should’ve waited for more confirmation rather than entering the trade. It was unlikely that a break of previous high was gonna happen because the 10-prd MA just crossed below the 20-prd MA.

  1. (Buy on trendline breakout; EOD execution) For me, a better entry is at point (1) when it did a break of the downtrend with strong volume. The price actually closed above Daily RSI 70 during that time (parabolic play) but no buy signal was triggered because the 10-prd MA was still below the 20-prd MA.
  2. (Buy on resistance turned support confirmation; EOD execution)Another buying opportunity for technical traders is the retest of previous resistance at 12. During its 3 bar consolidation, there were times that $MAC dipped at and even below previous resistance at 12. EOD closing price shows confirmation of breakout.

$MAC +31.64% (22 Bars Held; 10/10/17–present)

$MAC EOD buy signal when it broke out from 15.9 previous high. No sell signal triggered yet as of today.

Buy Points Modification: For those who were able to monitor this as it was breaking out, conviction on an intraday buy on breakout is high because of likelihood of a parabolic play.

So that’s it. Those were the new plays executed by the system after the last backtest. For the next part, I’ll talk about the perfect $MAC trade.

Reflections: The Perfect $MAC Play

“The big money is in the sitting”

As i have discussed earlier, $MAC showed perfect buying opportunity when it closed at 5.12 breaking out from resistance with explosive volume. AFL told us to sell at the break of 10-prd MA 37 bars later.

The big question for us is was it right to sell at that level?

Imagine yourself going back to that time, faced by the situation whether to sell or not.

By that time, you are already up 3 digits percentage return and maybe happy with your profits already. Was it a good time to sell? During that time, you still don’t know. Actually, all of us don’t know. No one knows shit. No one knows if $MAC will go up or continue to go down the next day.

The thing that you have to realize to stop overthinking is — YOU ARE UP BIG. It is in an uptrend — a good quality one. Settle down, don’t rush.

The solution will all boil down to this -> How much of your profits are you willing to give back to the market in what you expect as a big trend correction?

To help you decide on that, why not use your moving averages and try to compute how much difference from peak profits are you going to have if you execute your sell orders when the stock breaks down from this “uptrend supports”.

$MAC trend follow chart 1

Maybe if you try to analyze and try to see how much difference to your potential profits you will have if you sell at 10 vs 20 vs 50 prd MA you will control your fear and greed emotions.

As you can see on the chart above hen $MAC was trading below 10 and 20-prd MA but still above 50-prd MA, you can see that even if the market gives us a close below 50-prd MA, you will still have at least 90% profits. Which is damn good money still.

I mean, no one really knows how far a stock can go. And no one can predict if it is already the end of the trend. So why not try to give it a chance that a bigger move can happen.

The key is -> YOU ARE UP BIG.

$MAC trend follow chart 2

Bottomline

The parabolic system screener can really give us a good watchlist of profitable plays and can help us have a “rigid guide” for taking profits and cutting losses as presented on our backtest. But like any screener or system, at the end of the day it is what it is-a screener. Making profits based from our watchlist / screener will still be dependent on you — the man on the mirror.

It will still boil down on how you will be able to act on the information given to you by the screener and the charts. How you plan your entry and exit points, and how you execute them, how you manage your risk and lastly how you control your mindset and emotions. All of us may have the screener and all of us can look at the same chart but still our results wouldn’t be the same.

My point is, there is no holy grail or AFL or specific system that will constantly give you profits on its own. Which means to say, it is not enough to have a good profitable system or good charting skills. Execution is key.

Thank you! :)