Parabolic Stock Trading Strategy (The Essential Guide)

Do you would like to buy stocks that make monster moves?

But, undecided the right way to go about it.

Not to fret!

I’ve got you covered!

On this explosive guide, you’ll discover all there may be to learn about finding and trading a parabolic stock.

So here’s what you’ll learn:

Gaining the Edge: Learn the vital insights that may set you apart within the trading arena.
Cracking the Code: Detecting Parabolic Stocks – Where and What to Hunt For.
Crafting Expertise: The common mistakes to avoid so which you could level up rapidly.
The Final Step: Learn the proper ways to trade a parabolic stock.

Excited?

Well, let’s go!

What’s a parabolic stock?

Simply put, a parabolic stock is a stock that makes an enormous move in a comparatively short period.

In this text, I’ll focus more on stocks that make tradable parabolic moves over a rather longer period…

…quite than those stocks that fizzle out as quickly as they ignite!

But before I get into the juicy details of the characteristics of a parabolic stock, in addition to how you’ll be able to discover and trade it, there may be one really essential thing you want to know…

Understand this and blaze past the competition

To be honest, in case you are serious about entering the business of trading/investing in stocks that make parabolic moves, you want to understand this deeply:

Sometimes you can find stocks that take off like rockets…

But sometimes you can find duds…

…while the actual parabolic stock moves away from you!

So, step one is – to make your peace with regret and FOMO.

File them away – as a price of doing the parabolic stock business!

When you can manage to do that, you will likely be way ahead of two kinds of people that often enter this business:

Those that get caught up in regret of missing a parabolic stock, and hand over pondering that it’s not possible…
Those that get caught up in FOMO, and EITHER chase stocks which might be way above their ideal buying area,
OR buy any and each stock that is available in front of them, fearing that they are going to miss out on a move.

This results in the second step…

Zen and the art of trading a parabolic stock

So, are you able to wait?

Do you might have the patience to sit down and do… nothing?

Or are your fingers itchy to push buy/sell as soon because the market opens?

Are you able to maintain a peaceful composure, when the stock you purchase does nothing, while the stock you made the decision not to purchase seems to be the actual parabolic stock?

These usually are not light questions, and it is best to spend a while truthfully answering them.

Because there’s lots of waiting for the perfect chart setup to come back to you, letting the typical ones go…

So having the qualities of patience and acceptance gives you an enormous edge over the bulk.

Now,

I’ve told you concerning the psychological aspect, but there’s something more…

…there are millions of stocks out there, and any one in every of them is more likely to make an enormous move.

But which stocks do you have to give attention to?

If you would like to increase the chances of finding a possible parabolic stock, you might have to make sure you’re looking in the best places and for the best characteristics…

Where and what to search for in a parabolic stock

Listed here are some tricks to provide help to separate the wheat from the chaff…

1. Search for stocks making an enormous move on heavy volume

Often, a parabolic stock move is kicked off by a gap-up and an enormous single-day gain in the value of 10% or more – with very heavy volume on the day.

This big gain in the value could also be as a result of an earnings announcement, or every other story concerning the stock that’s perceived to be game-changing for the business.

It’s subsequently really essential to evaluate the standard of the story.

I do know, I do know… It’s type of subjective, but it surely is a skill that you’re going to develop over time.

One trick to evaluate the reliability of the story is to attend and see whether the value sustains, or quickly gives up its gains.

You need to be monitoring the highest gainers daily and check whether there may be a compelling story behind them – or not!

When you think the story is price your consideration, you’ll be able to add the stock to your watchlist and monitor it to see whether the value sustains or fizzles out.

The highest gainers each week may be found very easily on many sites like Tradingview or Finviz.

Have a have a look at this instance…

Carvana Day by day Chart:

As you see on this chart, there was an enormous gap in price in response to earnings, on very heavy volume.

When you were still unsure and desired to wait, you’d see how the value sustained its gains – by consolidating sideways after which breaking out.

An attractive 500% move followed in slightly below 3 months…? *chef’s kiss*

This brings me to the second point…

2. Concentrate on stocks which might be making recent highs

To extend your odds of finding a parabolic stock, direct your focus toward stocks which might be making recent 3-month, 52-week, or All-time highs after emerging from a consolidation/base.

Here’s a commonsense statement that holds lots of wisdom in case you think deeply about it:

The perfect solution to find stocks that may go up is to take a look at the stocks which might be going up.

A stock making recent highs after emerging from a consolidation is an indication of strength and it is best to pay more attention to it!

It’s significantly better than a stock that’s down 50% and appears like an affordable bargain.

Take a have a look at this instance…

Super Micro Computer Day by day Chart:

Do you see how the stock made a recent 52-week high after consolidating after which had an excellent 190% move in roughly 3.5 months?

Also, notice – that the move was kicked off by an enormous one-day move of 28% on heavy volume.

You possibly can easily find such stocks through the use of the Tradingview screener tool.

Here’s how…

Note: I feel it is crucial to reiterate that you could give attention to stocks making recent highs from a consolidation period…

Concentrate on fresh breakouts…

Also, you could avoid stocks which have already moved up significantly after breaking out from their consolidation.

So now onto the third point to take a look at…

3. Sister stock strength

When you see several stocks from the identical sector/industry on the new-highs list or the top-gainers list, it’s probably no coincidence!

It may very well be an indication that there’s a big demand for the sector as a complete.

This implies institutions are likely moving their money into that sector…

…and you ought to be closely monitoring stocks from there as well!

Further, if there may be any factor/news that positively impacts the sector as a complete then it’s serious icing on the cake!

So it is best to pay close attention to stocks from those sectors, too.

And one more solution to utilize sector confluence…

When you discover a stock that’s making recent highs, but it surely belongs to a sector that’s struggling, you might be higher off specializing in one other stock from a stronger sector.

Alright, so here is one other point to ascertain…

4. Which way are the steps headed?

One essential characteristic of a parabolic stock is that the value moves up in a stair-like manner.

The worth moves up after which consolidates – not pulling back much – before making one other move higher.

If a stock has to make a parabolic move, it isn’t going to achieve this in a single flash of a move, OK?

It should move up, consolidate, drop out of the general public’s eye, after which make one other move higher.

That’s why it is best to at all times be monitoring those stocks which might be consolidating inside the context of a long-term uptrend.

Take a have a look at this instance…

Tesla Day by day Chart:

See how Tesla made a large move in a stair-like manner?

Alright, so if I sum all the pieces up to your quest to search out a parabolic stock – listed below are the pointers you want to bear in mind:

Control the top-gainers daily. A parabolic stock move is normally kicked off by an enormous move on heavy volume.
Concentrate on stocks which might be making recent highs after emerging from a consolidation/base.
Pay special attention if many stocks from the identical sector start acting strong. Prioritize stocks which have sector confluence over those who don’t.
Ensure that the stock you decide is stair-stepping up in price.

Now that the best characteristics of a parabolic stock, let me also give you some extra advice…

Ensure that you don’t make these common mistakes

1. Which way are the steps headed? Pt. 2

As mentioned, it is best to give attention to stocks which might be stair-stepping up.

But at the identical time, you could also be sure that to avoid stocks which might be stair-stepping down!

It’s a mistake many individuals make, to be honest.

They get so fascinated by the story and news flow surrounding the stock – that they don’t check to see what the trend is!

So, do not forget that a stock that’s stair-stepping down is more likely to proceed to achieve this.

Here’s an example…

Advance Auto Parts Day by day Chart:

Do you see why it isn’t a superb idea to purchase stocks which might be stair-stepping down?

Also, notice how the steps got steeper as time progressed…

Scary, right!?

One other mistake often ignored is…

2. Is the stock too prolonged?

Now, I do know I’ve told you to give attention to stocks which might be making recent highs, but when the stock has already made a big advance from its consolidation area – it isn’t a superb idea to purchase it!

You would possibly say that that is pretty commonsense advice, and I agree…

However it is all too common to get carried away by FOMO.

I mean, how again and again have you purchased without giving any consideration to the risk-reward relationship?

Exactly!

So, you could protect yourself against FOMO, only specializing in stocks which might be making highs after freshly emerging from a consolidation…

AEHR Test Systems Day by day Chart:

As you see on this pristine chart, the value had an amazing response to earnings, following which the value went right into a consolidation.

Emerging from its consolidation period – the value made a recent all-time high!

The best point to purchase can be as soon because it broke out, somewhere between $8-$11 (blue shaded area).

When you had bought at the proper price, you’d have experienced bullish bliss because the stock made a high of $27, right?

Even in case you had trailed your stop-loss you possibly can’ve gotten out with an incredible return inside just 2 months!

But in case you were late to purchase and purchased around $25… then isn’t it fair to say FOMO played a component?

This might have resulted in an unnecessary stoploss.

Also, it’s okay if you would like to wait for confirmation, but you could concentrate on the proven fact that the more confirmation you wait for, the lower your reward-risk ratio gets.

Yet one more trap to not fall into…

3. Are you going against the overall market?

And here’s the thing,

If you would like to catch a parabolic stock, you would like to be sure that there are as many aspects in your favor as possible.

One essential factor that determines stock returns is the overall market condition.

If the overall market is bearish, it isn’t the perfect environment for long trades.

Now, you’ll be able to assess the overall market conditions by checking what the main market indices just like the S&P 500 are doing….

In the event that they are in a structure of lower highs and lower lows, it’s time to – sit out and wait!

That’s because in these markets, breakouts are inclined to fail and you will note your stop-losses getting hit fairly often…

S&P 500 Day by day Chart:

As you see on this chart, when the index was in a structure of upper highs and better lows, it might have been an amazing time to search out and trade a parabolic stock…

But when the structure modified to one in every of lower highs and lower lows – time to hit the brakes and go easy on trading the long side!

Alternatively, you can too use something like a 50 SMA to evaluate the trend.

If the moving average is sloping up and the value is above it, it’s a bullish environment.

Is it the opposite way around? – A bearish environment.

So,

Up until now, you’ve learned:

The mindset required to trade a parabolic stock.
Where to look and what to search for.
The mistakes to avoid.

And now, for the grand finale…

Let me show you ways you’ll be able to trade a possible parabolic stock!

How one can trade a parabolic stock

There are two ways during which you’ll be able to go about applying what you’ve learned in this text.

Method 1: Trading the parabola

On this method, you just buy a possible parabolic stock because it is emerging from its consolidation and breaking into recent high ground.

Let me explain it to you intimately…

Chart timeframe:

Day by day

Criteria for a stock to qualify:

Stock has recently made an enormous move on heavy volume.
There may be game-changing news behind the massive move, similar to an amazing earnings report or perhaps a big order.
Stock consolidates sideways on low volume, hardly giving up its gains. When you see volatility reduce while the value is consolidating – that may be a bonus!

Entry:

Buy because the stock breaks out from the consolidation.

Stop-loss:

Below most up-to-date swing low.

Taking Profits:

You possibly can sell at a pre-determined reward-risk ratio of 1.5:1. 2:1 or 3:1.

But since you might be on the lookout for a parabolic stock, it’s an amazing idea to attempt to ride the trend, even when it’s with a partial position.

This may provide help to to be a component of some monster moves!

You possibly can ride a trend with the assistance of a 20 SMA.

Stay within the position so long as the value is above the moving average and exit when there may be an in depth below the 20 SMA.

So, a mix of the above two techniques – where partial profits are booked at a certain RR ratio, and a certain portion is kept to ride the trend – is a superb idea!

Let me provide you with an example of a trade…

Celsius Holdings Day by day Chart:

In a positive response to earnings, the stock gapped up and had an enormous single-day gain of 33% on very heavy volume.

(That is where the stock would’ve come up in your radar in case you had been tracking the highest gainers list.)

So, you dutifully added the stock to your watchlist and saw that it climbed for a couple of more days before going into a protracted consolidation…

Let’s face it – the consolidation period would have tested your patience!

But, in case you managed to remain put, you’d have seen how beautifully the volatility contracted because the consolidation progressed, right?

And at last, the value broke out after a protracted time of waiting…

That is where you’d must be quick and enter a position!

When you had waited until the top of the day to purchase, the value would have moved 19% from the breakout point of $26.80.

So remember, more confirmation equals less reward.

Little doubt about it – the value had a stellar move.

When you had used the 20 SMA exit technique, you’d have cashed out of the trade with a cool 100% return in 2.5 months.

Pretty sweet, no?

Well, that was one method, but because you might be my good friend, I’ll inform you one other one!

Method 2: The magical watchlist

Possibly you have already got a technique that you simply use to take long trades.

Or possibly you’re taking swing trades that last only 3-5 days.

And in that case, having a watchlist of potential parabolic stocks that look very strong is an amazing idea!

Why?

Well, give it some thought…

Your trading performance will only be nearly as good because the stocks that you simply track.

So in case you search for long trades in stocks which have the potential to make a parabolic move, you might be putting yourself in a really promising place.

And in case you maintain and recurrently search for long trades in a watchlist of potential parabolic stocks, you’ll greatly increase the chances of your long trades working!

Not to say finding a greater magnitude move whilst you’re at it!

I do know the second method looks basic – but it may work wonders to your trading…

…and with that, let’s quickly recap all that you simply learned!

Conclusion

In this text, you learned:

The psychological edge that may put you ahead of the bulk.
The essential traits of a parabolic stock.
The common slip-ups to observe out for.
2 superb methods to trade a parabolic stock.