Parabolic Arc patterns are very rare, but occur in mega bull trends. These patterns form in bull markets where irrational buying in the public generates a strong rally as the prices rise almost vertically, e.g. the Internet Boom in 2000 and the Metals boom in 2005-2006. Most of these “Parabolic Arc” patterns go straight up and then come straight down. Other examples of this market types are the NASDAQ bullish markets during 1999-2000 and Gold prices from 1977 to 1982.
“Parabolic arc” is a reversal pattern and has a very predictable outcome. Although they are predictable, they are relatively difficult to trade since the market sentiment is bullish and may be relatively tough to point reversals to trade. Most “Parabolic arc” patterns have a significant correction of 62% from the top.
Trade: After a parabolic base, prices move up vertically and eventually the acceleration comes to a stop and then reverses. Prices start showing lower-lows and may attempt to regain the top again. Enter a “short” trade at the second failed attempt to test the peak or at the trend line breakdown connecting the major swing lows.
Target: Measure the distance of the rise from the base to the top. Most “Parabolic Arcs” result in 62% retracement.
Stop: Protect the trade by placing few ticks above the high point of the Parabolic Arc.
Trading Parabolic Arc
Trading Parabolic Arc
The example above illustrates a “Parabolic Arc” formation from the Silver futures chart. In 2005, Silver gained momentum as the metals sparked an interest in the world-wide markets. Silver futures rallied from the mid 7 to 15 range in a 12 month period. Prices rallied vertically during the beginning of 2006 setting up for a correction. From April 2006 to July 2006, silver futures corrected 62% to trade near 10.
- Silver prices made a failed attempt to test previous “Swing High” (similar to 2B Sell setup).
- Enter a “short” trade below first peaks’ low at 14.50.
- Place a “target” at 62% of the entire range to the first peak to 10.
- Place a “stop” order above the close of the second peak at 15.5.
Trading Parabolic Arc
Trading Parabolic Arc Pattern
“Parabolic arc” trading is rare, but does occur in both extreme bull and bear markets. The chart above illustrates an example from the Copper futures daily chart. From the bottom of 1.4000, in July 2005 to April 2006, copper futures rallied to 3.8000. Copper futures retraced to 62% by January 2007 in a corrective “Parabolic arc” form to close near 2.4000. The “Parabolic Arc” resulted in another corrective phase (to the upside) to bounce back to 62% level near 3.3800. Trading the parabolic curve is not an easy proposition, but long term trades may be profitable. Parabolic arcs also form in intra-day trading, displaying much more violent moves and may be difficult to trade.
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