Chapter 10 Advanced Stock Charting Techniques

This is an excerpt from the Liberated Stock Trader PRO Book and Training Course.  Chapter 10, Section 2. In this section we will look at some other techniques used in charts that may be considered advanced techniques,  these are perhaps not critical to success, but when you learn them can provide additional insights. Chapter includes Parabolic SAR, Ichimoku Charts, Bollinger Bands, Directional Movement System ADX and Market Sentiment

Parabolic SAR – Stop and Reverse

The Parabolic system created by Welles Wilder, is a popular trading system that gives extremely clear buy and sell signals.  The SAR in the name means “Stop and Reverse”.  In essence this is a system that keeps you in the market all the time.  When the indicator signals a “Buy” you should buy the stock and go long.  When it signals a “Sell” you should sell the stock and go “Short”

Other indicators like moving averages or oscillators may have a delay between when the stock changes direction and when a signal is generated; Parabolic SAR aims to improve the situation by adding two factors:

• Acceleration Factor Increase : A factor to accelerate the buy and sell signal responsiveness.
• Acceleration Factor Max : A factor to limit the acceleration of the signals.

Below is a chart of General Electric for 2009, you can see that the Parabolic SAR is plotted as a series of dots (this could also be a line). When the Dots are above the Price this is a downtrend and is interpreted as a Sell or go Short. When the Dots are below price, this is an uptrend and the signal is a Buy or go long.

The actual signal is when the price cuts through the Parabolic SAR line and the Dot move from above to below and vice versa.  The signal is the first dot.  The acceleration factors come into play when a stock has moved in a trend for a substantial amount of time, the indicator will then move the dots closer and closer to the price line as the trend slows or falters.  This theoretically maximizes your gains.  The two configurable parameters allow you to tweak the acceleration of the Dots to the price line.

The way this indicator works is quite impressive however it is not perfect, like most oscillators when the stock is in a period of lateral consolidation or channeling then many false signals may be produced and losing trades can occur.

A great place to experiment with the Parabolic SAR indicator is over at FreeStockCharts.com

Other Chapters of the Liberated Stock Trader Book are listed below

Chapter 1 – Essential Stock Market Knowledge – Fundamentals

Chapter 2 – Why do Booms and Busts Occur?

Chapter 3 – Stock Market Cycles – Business & Economic Cycles – Kondratieff to Kuznets

Chapter 4 – Is the Company in great shape – P/E Ratio

Chapter 5 – How to find the best stocks

Chapter 6 – Japanese Candlesticks – Bullish Reversal Patterns

Chapter 7 – How to draw trend lines

Chapter 8 – ROC Rate of Change Indicator

Chapter 9 – Chart Indicators Volume – The Price Volume Relationship

Chapter 10 Advanced Stock Charting Techniques Parabolic SAR