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2010issue C028-9

Building loss limits from the parabolic stop-and-reverse plot

The parabolic stop-and-reverse plot is a dedicated time-and-price construction that appears as a parabola on a chart. The same path is proposed as a mechanical site for a stop-loss and, once a trade is open, as a trailing stop.

  • The method is a dedicated time-and-price plot that traces a parabola and marks a candidate stop-and-reverse level.
  • The same mechanical formula is proposed to site a stop-loss so the loss bound is defined by the construction rather than by an ad hoc price.
  • Once a position is open the curve can be read as a trailing stop until a reverse is triggered, and a cross is meant to flip stance rather than send the account to cash.
  • The raw construction can issue false signals, so later treatments modify the rules and typically pair the plot with other tools and chart patterns.
Entries in this reading3 entries
Stop-loss order15 readingsTrailing stop15 readingsCurrent trackParabolic SAR21 readings

A dedicated time-and-price parabola

The parabolic stop-and-reverse plot was introduced in 1978 as a dedicated time-and-price construction, not as a short footnote inside general trading books.

On a chart the construction appears as a parabola, which is why the method is named parabolic stop-and-reverse. The plot traces that curve and marks a candidate stop-and-reverse level.

Site the stop-loss on the curve

The same mechanical parabolic formula is proposed as a way to site stop-loss orders so the loss bound is defined by the indicator rather than by an ad hoc price.

In that use a stop-loss is a pre-placed loss bound, sited by the mechanical parabolic formula rather than a discretionary price.

Relocate the bound as a trailing stop

Once a trade is open, the parabolic path can be read as a trailing stop: the stop-loss is relocated along the constructed curve until a reverse is triggered.

A commonly described exit construction uses the parabolic stop-and-reverse path as the chosen departure point after a position is open. The trailing stop is that relocation of the stop-loss along the parabolic path as the trade develops, until the reverse condition is met.

Read the stance flip after the bound

Stop-and-reverse means the plotted level is used to stay continuously positioned. A cross of the stop flips the stance instead of sending the account to cash.

Editorial note: the archive presents that continuous stance rule as part of the same construction. This article reads the flip only after the stop-loss has been written and trailed.

Why the raw plot is not used alone

Because the raw construction can issue false signals, later treatments modify the stop-and-reverse rules before they are used as live filters. A false signal is a stop-and-reverse crossing that does not persist.

Study of the method typically pairs the parabolic plot with other tools and chart patterns rather than treating the dots as a self-contained plan.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
15 of 21 in the Parabolic SAR track
201524-26 pp.Next on Parabolic SARDual-zone currency indexes filter parabolic SAR signalsA personal currency index quotes the euro against an equal-unit basket of USD, JPY, GBP, AUD, CHF, and CAD, while a reverse dollar index sums those counterparts versus the dollar.
All readings on this track · 21 readings
  1. 1987Constructing parabolic stops and cycle-window averages
  2. 1989Evaluating always-in parabolic SAR trailing stops
  3. 1993Constructing parabolic time-price trailing stops
  4. 1995Constructing parabolic SAR as an accelerating trail
  5. 1995Constructing a noise-buffered parabolic trailing stop
  6. 1997Constructing a parabolic trailing stop that only tightens
  7. 1998Triangle breakouts filtered by an exponential average and exited with parabolic stops
  8. 2000Treat volume-price imbalance as a hypothesis and let Parabolic SAR hold the exit
  9. 2002Constructing volatility stops from average true range and parabolic SAR
  10. 2002Parabolic SAR construction from stop outputs to reversal signals
  11. 2002Always-in-market SAR trail with directional confirmation
  12. 2004Forex trend confirmation with Average Directional Index, Parabolic SAR, and trendlines
  13. 2006Permission and fill gates for mechanical systems
  14. 2008A Relative Strength Index channel for profit lock and a trailing stop for capital protection
  15. 2010Building loss limits from the parabolic stop-and-reverse plot
  16. 2015Dual-zone currency indexes filter parabolic SAR signals
  17. 2016A parabolic trailing stop is not a complete system
  18. 2019Assigning jobs in a stochastic, parabolic, and moving-average stack
  19. 2019A three-filter stack as a redundancy test
  20. 2020Mechanical Parabolic SAR as an always-in flip after a breakout
  21. 2020Layering Relative Strength Index, MACD, and Parabolic SAR onto relative rotation maps
By fieldStops and loss limits12 readingsBy year20109 readings
All 21 readings tagged Parabolic SAR
Also on Parabolic SAR5 readings
1993Constructing parabolic time-price trailing stopsTrailing stop1995Constructing a noise-buffered parabolic trailing stopTrailing stop1995Constructing parabolic SAR as an accelerating trailStop-loss order1997Constructing a parabolic trailing stop that only tightensTrailing stop2016A parabolic trailing stop is not a complete systemStop-loss order