V.7:11 (411-413): Parabolic stop/reversal by Peter Aan

V.7:11 (411-413): Parabolic stop/reversal by Peter Aan
Item# \V07\C11\PARABOL.PDF
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Parabolic stop/reversal by Peter Aan

There are two primary variables for the system: the acceleration factor (AF) increment and the maximum acceleration value. In a long trade, for instance, the daily computation involves subtracting the current reversal stop from the most favorable point reached in the trade and multiplying this difference by the AF. This result is then added to today's stop to arrive at the reversal point for tomorrow. The general equation is:


Every time the market moves into new highs, the AF is increased. As the AF increases, the stop, which will start out rather "loose," will start to track the market more closely. The AF continues to increase with favorable price movement, until it reaches the maximum acceleration value (0.20 is Wilder's original limit), at which time the AF stays at that level regardless of market action.

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