Parabolic Reversal: How to Deal with Double Fake Breaks?

[nick jiang 0]

Is there a way to deal with double fake breaks when trading parabolic reversal?

My parabolic reversal trade book is:

• Wait for consecutive candles, extended from 9EMA
• Climactic volume
• Reversal candle
• Wait for fake breakout
• Enter at the new 1-min high/low

But sometimes there are double fake breaks, is there a way to anticipate that? Thank you.

 

[Angela Kuzeva 23]

I wouldn't consider this set up for a parabolic reversal. There is a range and one 5 min candle after breaking. I am not saying it will not reverse but this is not a parabolic move.  It has to be extended on 5 min, clear parabolic move, many consecutive candles in a row with no pullback. 5 min candles must be bigger than average, small 5 min candles don't count. Level on a higher TF and fake breakout on 5 min. Your entry is from 1 min, but you need at least 1- and 5-min TF alignment. Later on, a day I look at 15 min TF and play parabolic reversals on 15 min. 

The best way to avoid double fakes is to enter early when is still extended on 1 min and if comes back exit at BE. You need to see the momentum and must read the price action inside the 5 min candle (1 5-min candle consists of 5 1-min candles) minute by minute to be able to anticipate that the 5 min candle at the low will close as a green candle for a long for example. 

Win rate on Parabolic reversals is low. You will have many losing trades because you try to reverse a strong move. It comes down to be quick to exit at BE or less than 1R loss and hold the winners to target. You also need to have very tight SL to be able to cover the losses and have high R:R.

Parabolic reversals are tricky because the strategy is based on excellent read of the price action minute by minute around the level of interest. My trade book on them is 12 pages so far and I continue to add different scenarios and new rules. It needs patience to wait for a perfect entry. 

Look at the chart I attached, you have many consecutive red candles with no pullback on 5 min, extended on 5 min, level on daily, extended on 1 min, tweezers on 1 min, hammer on 5 min and fake BO on 5 and 15 min, increasing volume at the low. 

 

Edited May 27, 2023 by Angela Kuzeva

[Martin D 27]

Not sure whether you're using Aiman's parabolic reversal as Angela is discussing or whether you have you're own entirely separate one like I do.

However, to me the trade isn't a reversal because it hasn't really properly trended. If you look at your 5 minutes it's really more of a range (admittedly not a very clean one) and so the volume is the breaking of the range because a lot of the people who were long in there will stop out there because it's taking out the bottom and breakout traders may enter. This can either be a trap so the big players or market makers grab their liquidity at lower prices before we re-enter the range and potentially go long or we can retest the range and then it'll continue short. If you want to know more about this type of price action then look up Wyckoff.

[nick jiang 0]

Thank you so much, @Angela Kuzeva and @Martin D. I've been using Aiman's Parabolic Reversal strategy (and have added many of my own rules to the playbook). Your feedback are very helpful, I'm grateful that you've taken the time to help me with this.