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» BoltonCT - What is Spiral Trading ?

In response to What is Spiral Trading ? posted by ganbar:

Under analysis I have found that the spiral is almost identical to the Parabolic SAR, a well-known indicator that YAHOO provides for their technical charts. Google "Parabolic SAR" and it tells you how it is calculated and its strengths and weaknesses (primarily whipsaw). One should not use the Spiral or SAR alone.

Parabolic SAR, one of Wilder's well-known indicators. When applied correctly, Parabolic SAR can greatly enhance your trading decision-making.
Parabolic SAR stands for Parabolic Stop and Reverse. The indicator's name derives from the shape it takes on the chart (also looks initially like a spiral). When SAR first gives a buy or sell signal, its slope is relatively flat. However, the longer one is in a successful long trade, the more steeply the SAR dots rise. Eventually they take the shape of a parabola, rising at virtually a 90% angle until at some point price and SAR point meet. At that point in time it is usually wise to exit the trade. (Invert the description above for a short trade.)

Wilder was primarily a commodity trader, not an equities trader. On a relative basis, he therefore had far fewer "tradeables" from which to choose. His SAR system dealt with this limitation by always being in the market. The trader is either long or short, but is never out. When the SAR point and price meet the long or short position is reversed and the trader takes the other side.

Construction
There are a few basic concepts that need to be addressed before we can explain how Parabolic SAR is calculated:

Extreme Point
This is the highest price recorded (to date) during a long trade or the lowest price recorded (to date) during a short trade.

Significant Point
The SP is the highest price reached in a long trade or the lowest price reached in a short trade. It is equal to the extreme point when a trade is closed.

Acceleration Factor
The Acceleration Factor starts at 2% for a new trade and increases by 2% on each day that a new extreme point is reached. The maximum acceleration factor is 20%. For the SAR, no further increases are made after this figure has been reached. For the spiral this is relaxed and the spiral approaches a tangent to the trend. For all practical purposes the Spiral is only a fine tuning of the SAR.

Entering a position based solely on a SAR buy signal doesn't safeguard against the possibility that the stock could already be in an extended trend and close to reversing direction. There are times when there is a trend in one direction, and then Parabolic SAR gives a signal to enter from the other direction. After just one or two dots, the original trend resumes. If you follow SAR alone, you are whipsawed.

GOOGLE "Parabolic SAR" and you will find a wealth of information.

The plots generated are slightly different depending on the assumptions but the accelerating nature makes their timing reliability virtually the same. However Yahoo and other services provide Parabolic SAR free for most equities.

-- posted by BoltonCT