Identify Market Stops and Reversals Using Parabolic SAR

Good morning everyone. Welcome to this trade station master class. This is a class where we talk about strategy testing. We talk a little bit about easy language and we talk also a little bit about technical analysis. Today's presentation is highlighting technical analysis. And I always like to frame technical analysis around strategy testing because the only reason why we would look at technical indicators is for it to provide us some sort of a signal. And if we're able to combine that with strategy back testing, it does provide us a little bit of confidence about what the indicator does and the signals, the strength of the signals that it generates. Now, a lot of times we look at an indicator and we may think that the indicator works. We probably have heard a lot about the indicator, but there's nothing better than taking that indicator, applying it to historical data, look at all the entries and exits that indicator would have generated in the past and then get a sort of a performance report on that indicator or that strategy so that we know if the rules or conditions are sound and if it's something that I would want to trade forward. So the reason why we do these classes is to showcase some of the technology and some of the tools that are part of the trade station platform that help you do precisely this. Before I get started, let's go through some of the disclosures. Just keep in mind that every symbol and idea that I talk about is for educational purposes only. Trade Station doesn't make any type of trading recommendations and we all need to be aware that trading online is risky and if anybody needs additional information on these disclosures, you can always go to tradstation. com/important-information. All right, thank you everyone for being here. What I'm going to do right now is I'm going to switch over to my tradstation platform and show you some of the things that I've been talking about. Let me open up a chart. I'm going to go to apps here and click on chart analysis. So, a few things happen when you pull up a chart. You have to determine what security you want to back test an idea against. Also, the time frame plays a big role into how the strategy is going to behave. Right now, I'm looking at a fiveminut chart. You can see the end time frame right here on the top left corner. So, every 5 minutes the strategy will recalculate and try to enter trades. So yes, it has to do a lot with the frequency in which the strategy is going to generate trades. If you pull up a one minute chart, let's say that I just type in a one here and hit enter. This is a one minute chart of Tesla. Just means that every 1 minute the strategy is going to calculate. I've repeated this twice because I want to clarify that when you add a strategy to a trade station chart, which we haven't done, we haven't done yet. When you add a strategy, the strategy is the type of mechanism that calculates on every single bar. So by determining the time frame, you're also determining how frequent you want the strategy to trade. So we said in a one minute chart, the strategy calculates every 1 minute and every 1 minute there are going to be orders generated. There's a the strategy goes through a very interesting process where it looks at all the orders that are active, cancels everything that is active if it has to, and then runs all the calculations again and generates new orders for the following bar. That's what the strategy do. does by default and it'll do that on every single bar. So, when determining which security and which time frame you want to apply the strategy to, it's something important that you have to consider when you're doing strategy testing. I'm going to change this chart to a daily time frame. And I'm not sure if you've noticed on Trade Station, but every time that you load a chart for a specific time frame, you get different amounts of historical data. Like for example, if you have a one minute chart, let me go back here to one minute. And I'm going to use the scroll bar at the bottom of my chart. I'm going to go scroll all the way to the left hand side. And to check the date, I know that I can see the date down here. But a lot of times, if I look at my time scale, I see times. I know that I see a date back here. Let's see if I see a date. A lot of times if you like in this particular example, if you're running a chart that is very granular, very small timer, in this case 1 minute, you don't see a date anywhere. But there is a way for you to know the date by clicking on the background and holding your mouse button. This is called the data tips window, and it only shows up on your Trade Station charting if you click and hold the mouse button. And you can then move it around the chart, and it'll follow your cursor. That way I can put my vertical axis on the very first candle of my chart and I can tell what

the date of that candle is. Right inside that data tips window, it says 9:31. That's the time of the candle that I'm on. And it says March 6th, 2026. So this chart right here goes back a couple of historical days, trading days. So today is March 10th. Yesterday was Monday, March 9th. And then the additional historical day would be the 6th of March, which was Friday. It loads two historical trading days, which is not much on a one minute time frame. And the reason why we or the reason why Trade Station does that is it just makes your chart your charts much more efficient. But if your idea is to back test a strategy on a one minute time frame, you probably need more historical data. And that's true for any time frame. I just wanted to explain that depending on the time frame you select, you're going to get a default amount of data. It does not mean that's all the data that you get. You can always request more. So, if I wanted to have, let's say, 90 days of one minute data. I'm just going to type it in. I'm not sure if you're aware of this, but is very responsive to keyboard commands. And I can type in commands like 90 days and Trade Station will process that as a historical data request and it'll load 90 days of historical data on my chart. I'm going to hit enter. You're going to see a PD. The PD was really fast over here. I have a fast internet connection here at home, so it downloads data pretty quickly. I'm sure that I've looked at Tesla many times in the past and this is something that you're probably not sure if you're aware of this, but every time that you load data onto your trade station, it saves that data into your hard drive so that if it needs to get the data again, it doesn't have to go out to the internet and download it. It'll just read it from your hard drive, which makes the loading much more faster. But here, I've loaded 90 days of historical data. I'm going to do the same scrolling all the way back on my chart and I'm going to do the same clicking and holding. Click, hold, and I'm going to go to the very first candle. The time is 9:31 again, but the date is October 31st, 2025. It was able to load those 90 days of historical data. Now, if I add a strategy, I'm going to have more opportunities for the strategies to have generated signals. It is recommended that when you look at a strategy performance report that you have enough historical data to have a size or significant number of tests. If you do a historical back test and in the back test all you get is five trades that is not a very confident performance report because in those five trades anything can happen going forward. So the fact that you got five trades his in history that did well does not mean that you're going to get those same exact five trades. Now if you have a historical back test that has 100 trades and then you say 75% of the trades are winning trades and 25 are losing trades. It gives you a little bit more confidence because it has more opportunities in which the strategy did well than if you were to rely on a five trade historical back test. So always think about the number of trades first just to make sure that you have a test that you can utilize and trust. trust for whatever reason, if it's for a strategy that's doing well or bad, because a lot of times this type of testing allows you to discover the feasibility of any strategy, whether it's a good strategy or a bad strategy. But the nice thing is that you do have the tools to be able to determine if a strategy is going to work or not. So today's topic was all about the parabolic s. Let me go ahead and find that study here inside my trade station. And I'm going to go here to studies and add study because we're going to do a combination of study with strategy. So I'm going to go here parabolic s. I'm going to prompt for editing because I want to make those circles that the parabolic s draws. a little bit bigger. So I check the box that says prompt for editing. I click okay. And then I just in the style I just these are points. I'm going to make the dots this thickness. All right. Let me see what the color is based on. The color is going to be based on where the dots are. If they're above or below the bars, let me go and click okay. Okay, there we go. So, those are big dots. And take a look. When the dots are above the candles, that is considered a bull bearish movement. The magenta color is an indicator that it's a bearish movement. And whenever you get the little dots

below the candles, that's a bullish movement. And that's why the dots are blue. But take a look at where the indicator switches from a collection of magenta dots into a collection of blue dots. Many times the switch is not as prominent. For example, right here we see a little swatch of blue circles. I was going to say green. They're not green, they're blue. You see a swatch of blue circles, but they're on a flatline. So, this is not a clear reversal. And of course, trending strategies or trending indicators are going to be like that by nature. Many times, yeah, you get these very nice uptrends and downtrends, but other times you're going to see a little bit of false signals or consolidation signals. Right here, we have a swatch of blue circles or flatline. Then it goes into another reversal mode where we have a swatch of magenta dots that have the same characteristic. It actually doesn't go anywhere, just flat. So this backto back would have been two trades that are not as good. Like for example over here, take a look. So we have this very prominent up rally and in two areas we see two corrections. You see the candlesticks actually correct. The indicator flips to the bearish mode but only for one candle and then it switches back to bullish. Over here we had the correction and the indicator switches to a bearish mode one bar and then it switches back to bullish. So you see these back and forth that sometimes breaks the continuity of your strategy and we're going to take a look at how the strategy behaves based on these signals. All right, so we have a one minute chart. I'm not saying that 1 minute is the time frame that you should trade this. I would have liked to do something higher time frame, but let's go ahead and start there. And a lot of times it's all about discovery and seeing how indicators behave under certain conditions. So I never rule out any time frame just because I don't ever use it. I never trade a strategy on a one minute. I think it's excessive trading throughout the day. But if the strategy performs I it's great to discover that type of thing. So, let me go here to studies and go to ad strategy. There are a few parabolic strategies. I'm just going to use the simple one, parabolicle and parabolic SE. The other two are exit strategies that we may combine a little bit later to see if it improves or if it worsens the strategy. So, I'm just going to do the two entries first with a in a strategy when you combine two different entries, they will interact with each other and they'll flip your position back and forth between a long and a short. Not the ideal strategy because you're always in the market and of course the more you are in a position, the more risk you're exposed to. So having a strategy that flips you back and forth between long and short and always keeps you in the market is not the best strategy. But we're going to again this is just a starting point. We're just utilizing the tools that trade station provides to give us an idea on how this performs. I'm going to click okay. And for now I'm not going to make any changes. There are some parameters inside the parabolic s acceleration and limits and stuff like that we can look into and even optimize. But for now, let's use default parameters. I'm just going to click okay. And if you look closely, you're going to see that every single time that there is a flip in this study, we have a strategy signal with the exception of this one that we had pointed out earlier. Remember that we talked about this magenta dot and we said that yeah, Tesla went into some sort of a consolidation period for 6 7 minutes right here. It flipped to a bearish signal but then it went into bullish again. That particular magenta dot does not have a strategy signal aligned with it. Now the reason for that and this is something that as you work with strategies you're going to learn a little bit more. The reason for that is because we are at the very beginning of the chart. I'm not sure if you guys remember, but we used the scroll bar right here at the bottom to go all the way to the left and we're right here on October of 2025. So, at the very beginning of the chart. And one of the things the strategy does when it first sees data is that it's going to reserve the very first section of data for the strategies calculation. The default number of bars that it saves is 50. So, if you were to count all the candlesticks from the very first one up until where the first signal is generated, which is right here, you're going to have at least 50 bars. It may

generate a signal on the 51st bar, but if the conditions are not met, it could be the 52nd or the 53rd bar, but at least 50 because the strategy does that on every chart that it goes into. It just saves the very first 50 for calculations. And then from that point or from that candlestick forward then it'll generate entries for you. And that's why when this flip happened that we pointed out earlier we have no strategy signal aligned with it because this is still within those first 50 bars. Does that make sense? So it actually generator started right here on this flip to the downside. So it's just a big red candle. We can see how the parabolic S switches to a negative. We see that the signal happens on before on the bar before the switch, which is great. And then it keeps that trade until the bar where the switch happens again. Okay, let me take a look at the strategy, per se. I'm going to go here to this red arrow. And you can do that on your trade station, too. There is always a benefit of learning a little bit of easy language because it does allow you to understand how the strategy is behaving and the type of things that is calculating. Because one of the things that stood out to me is that the signal is placed on the last blue dot, the candle with the last blue dot right before it goes into a bearish mode, which is interesting. Let me go ahead and rightclick on that arrow and I'm going to go to edit easy language. For those that are new to easy language, it's Trade Station's proprietary programming language that allows you to create custom strategies and custom indicators. I'm going to open up the parabolicle just to take a look at the indicator and how it's built. Actually, this is the strategy. Let me just go over here and open this up. Okay, let me lower this a little bit. If this is the first time you're looking at easy language, it may look a little bit overwhelming, but it's not that difficult. We have the inputs that we talked about earlier. These are the two parameters. We have the acceleration factor and then limit. Those are two parameters for the parabolic s that you can adjust. the more you increase the acceleration factor, I think the closer little dots will get to the bars and it'll increase the chances of crossing over. We can test that in a little moment. And then you have over here the parabolic s function. And if O position equals -1, then buy next bar at parabolic stop. This is on a long trade because I'm looking here at the believe that when I went over here to my trade station. Let me go back here to my platform. Yeah, I rightcicked on the red arrow went to edit easy language. But instead of clicking for the code of the short entry, I clicked on the long entry. But the short and the long entry for the parabolic are going to be very similar. Take a look. The only thing that changes is what O position is. Now when O position equals one, meaning that there's a switch, it's going to sell short next bar at par stop, which is one of the values that get gets calculated by the parabolic S. So if you wanted to know what this position is throughout the chart, let me show you a trick. And I've done this on multiple strategies just to find out, okay, what is the position status on every single bar that I'm evaluating. What I do sometimes is I do a print. This is the way that you do a print statement. I'm going to add the word print into this code. Sometimes I do it right into the original code just as a way of not having to create a different document. Many times I do recommend that you create a copy of the indicator before you make any modifications so that if you mess up the indicator and it's not functioning anymore, you have a way of retrieving the original. But in this case, I want to print and the date, the time, and O position. If you do just the actual words or the values that you want to print without labels, this is what it'll look like. And it's sometimes difficult to follow, but I'll show you how you can modify this. Let me verify this cuz we verified it. Let me go back here to my trade station. And in order for you to see the print statements, you have to go here to view and then go to easy language print log. And that print log is going to be right here at the bottom. Now, of course, you see the most recent candlesticks, not history

because it actually let me scroll up all the way to the top, and you can see that it prints a value for every single bar. Now, the date is right here. The very first eight digits is the date. Now, this is not the right date format. You'd have to understand how easy language reads date. 126. The first three numbers is the year 2026. This is like Trade Station's way of fixing the Y2K problem. Easy language date was using the twodigit year, the 98 99. When it got to the year 2000, instead of dropping it to 000, which would have been 1900, it actually raised it by one more digit. So from 99, we went to 100. So 100 was the year 2000 and then it was 101 was the year 2001. 102 was the year 2002 and right now the year 126 is the year 2026. That's why we use that format. So we have the date the year 2026 and we see the date this is the date which is March 10th. No actually not March 10th. Let's see. Yeah, it is March 10th. Oh, that's because we're in March. It actually scrolled all the way to the bottom. So over here, 2026. January 30th. Is that January 30th? 2026. Where's my output again? Sorry about that. Let's see. That's January 30th. Why is it January 30th? Okay. Not really sure why it's not showing. Back to October 2025. It should print for everything. Let me reload this. CtrlR and see if I get a different result. All right, let me clear this. I'm going to rightclick and clear and then do Ctrl R one more time. It'll print statements again. So this is 2026. Just trying to understand here the print log and why. Oh, okay. The reason why it doesn't do it is because the strategy does not calculate the whole stream. You guys see that? So, historically, I don't have any signals here. So, let's try to fix that. A lot of times when you reload a chart, it doesn't fill the whole chart with signals of the strategy or the indicator. So, what happened here? I think I have an idea of what happened here. In fact, if you do CtrlR again, Trade Station will load the data one more time. The PD will remain there, but it won't automatically recalculate. There's a setting inside of the strategy or the charting. It's a charting preference that prevents the chart from recalculating when new data comes in. And this is what's happening so that you get a clear understanding of why my chart didn't fill up. And if it happens to you, you know exactly what to do. Remember that we were talking about data and how much data trade station provides you depending on the time frame. And we said if we if you look at a one minute chart, you know that it's only going to give you two historical days. And on our chart, we have 90 days of one minute data. So when you every time you do Ctrl R, which is what I've been doing here on my keyboard, if you hold down the control key and you press R, you're reloading the data. You're forcing Trade Station to ignore whatever's on the hard drive and go to the Trade Station data network and download fresh data. While it does that, it's going to download a large chunk of data because remember, by default, it only gives you two historical days. But the strategy is a little bit faster in the calculation and it calculates before it has all the data downloaded and then it just displays signals for you which is what's happening right now. And once trade station after it's done all the calculation on the strategy is able to fill up the chart with all the historical data then the strategy doesn't recalculate. Stays where it is. meaning that it only shows signals on the data that it saw the first time that it calculated and it will ignore all the new data that just downloaded. So in a sense you have to turn on a setting that forces the strategy to recalculate again. Yes. So this is what's happening. I go to settings and I go to preferences and go to data. Those are the two check boxes that I've been talking about. James, thank you for your input. Max bars back setting for calculations. Yeah, we talked about that a little bit at the beginning of class. No trades during that time. Correct. This is the calculation that you need to turn off. It's on by default, by the way. It says do not automatically recalculate a chart analysis window that have studies and do

not automatically recalculate open charts that have a strategy. And that's why it's not doing it. So, let me go ahead and uncheck those. If you do want the strategy to recalculate once it's able to download all the historical data, those two check boxes need to be turned off. Let me go ahead and click okay and then do CtrlR. That's going to do PD right here. There we go. Now, let me clear out the print log so that I can get a fresh print. I'm going to do CtrlR one more time. You're going to see how the strategy fills in and once the data comes in again, the strategy should recalculate and now we have signals throughout the history of this chart. Okay, now the print log. If I go all the way to the top, I get the very first print that happened. Let's see. All right, this is it's getting weird. Okay, because my chart goes back to 2025. My I'm not sure if this is a bug. Yes, James, you can turn the strategy off and on. Now, I'm trying to figure out why is it that I'm not getting prints for last year if I have strategy signals last year. Okay, let's see. Okay, so what James is suggesting, we have to turn the strategy on or off for this to kick in. Let me go ahead and clear the results. Let me go ahead and go to studies. Edit strategies. Not the indicator. Studies. Edit strategies. Let me turn the status on and off here. Okay. The strategies off. Go to edit strategies and turn it back on. Is that something new, James? Because I was under the impression that I had noticed that bug before. No, still. Now, this may be a bug, too. My print log is not filling my whole data. So I'm getting data for March only from January. And my chart does go back to October of 2025. I do see signals being generated on October 2025, but my print log is not showing them. Okay, that's fine. I'll look into that. I'll bug some of the engineers here at Trade Station and try to figure out what happened there. But you should get a print on everything that's going on here. So, let's go here to the front, the more recent print, and take a look at what's happening here, more recent data. So, I'm going to go and scroll all the way to the front. This is today's trading activity. Today is the 10th, which is all the prints that we see here. And you can see that at the moment, O position is a negative one. And you can see that we have a bearish parabolic SR forming at the very top. Unless we get a push on this big candle that's drawing right there at the very current bar. You see the big push that's happening to the upside and that may switch my S to a bullish setup. Now, of course, at the end of the bar, my strategy will recalculate. There we go. It's still negative one. Okay. So every 1 minute the strategy recalculates and o position still negative one. When it switches to one that's when we get the signal. For example, this signal was generated when we were in a series of positive ones right here on this bar which is the 1024. on the 1025. That's when O position was negative one right here on the 1025 bar. So I wanted to just give you an idea because a lot of these values like O position is a value that gets calculated inside of the parabolic S. We looked at the strategy code. We went to the easy language and we determined that O position is being used to either sell short or buy. So that determines whether the strategy is going to go long or short. And the reason why we did the print statement is you can see how trade station also gives you the ability to know what is the value of o position on every single bar and on the switch is going to pretty much change your position. How does the strategy behave here? So let's go and hide my print log. Let's go to data and go to strategy performance report. You can see that this particular strategy is more like a break even strategy. And this is what I've noticed on parabolic S strategies. When you do a very minute time frame or a very granular resolution, you get a lot of false signals and that's why the strategy kind of break evens. If you look at, let me collapse. There's a little button here that says collapse. It just reduces the amount of information that's inside of the

performance report. But you can see the total number of trades here was 3,191. is massive. 36% of the trades were profitable. So, you had a,000 winning trades, 2,000 losing trades, but you can see that the average net profit is pretty small. When you're talking one minute time frame for Tesla, there's not much room for movement. The largest winning trade was $2,200. The largest losing trade was $943. Now, of course, those trades may have been anomalies that happened on big upswings, even gaps that actually captured all that money. But in a one minute time frame, usually what you get is this average trade profit of $1. 15. If I change the time frame here, let's say I'm going to change it to daily, everything here changes. Now, the strategy recalculated, you can see the time frame right here on the top of my performance report. Now I'm going from March 11th, 2024 to March 10th, 2026. So this is a couple of years of historical data. And you can see the total number of trades is 34. Generally, when I'm doing historical back test, I want to see a little bit more trades. Especially if you're running a strategy on two years worth of data, it just seems like 34 trades. It's very little. It's about a trade a month when you have trade and a half or not even two trades a month which is not very active strategy but it's okay. We haven't introduced exits. This is still an entry strategy we talked about at the very beginning of class. This is flipping you back and forth between a long and a short position. If I scroll on this strategy performance report, you can see that this is percent of time in the market. You can see 99. 7%. And it's not 100 because remember the max bar is back setting. It is not in a position at the very beginning of the chart. But for the most part, it's always in a position. Not the best way to run a strategy. It's very risky. There is a measurement inside the performance report called the reena index that does a calculation based on profit or yeah profit how much time you're in the market and it creates an index that uses risk. Let me go ahead and click on reena index because when you it just gives you the specific formula. So the rena index is your total net profit divided by the average draw down. How much you know that your equity goes down times the percent time in the market. Okay? It takes those three components creates a formula and throws a score based on risk. And right now the reinda x the rena index is about 17. 22 and it's not about the number itself is about where the number goes when you make modifications to the strategy. Now when I was on the one minute time frame and I was looking at 90 days, you can see how my rea index was negative 430. So it was not in good shape. We went to the positive side by just going to a daily time frame and we saw how the strategy performs better on a daily t time frame than it does on a one minute. Again, percent time of the market 100%. Let me go back to a daily time frame. If I wanted to get more trading activity, more than 34 trades, I could either adjust the parameters of the parabolic s or I can load more history. Let's say that if I load five years of historical data, you can see that now instead of 30, I have 94 trades. Now, the strategy is profitable. You can see that the total net profit we have about $60,000. The profit factor is about 1. 6, six, which means that for every dollar we lose, we make a $160. Not bad. Although, this doesn't take into account strategy costs, slippage, and things that may not work in your favor when you're running a strategy live. Now, if I look down here at Reena Index, a little bit higher at 40 than it was before because it's able to have more trades, have more profit because of course it's a translates into more opportunities for trade. It could have gone the other way. to the negative side if there were more losing trades. But if you look at the profitability, we have about a 40 44% profitability, which is pretty typical on a trending strategy. Now, if I go to my performance graphs, now that's not an equity curve line that bothers me. I'm not saying that it's perfect, but if you were to draw a regression line across all these data points, you get a clear angle. Maybe not a 45 degree angle, but maybe a 30 35 degree angle, which is pretty interesting. Now, of course, we can

continue modifying the strategy. Let's go ahead and do a couple things and then I'll let you guys go. Let me go here and close this out. Trade Station provides a couple more strategies that take care of exits. Let me go here to add strategy. Parabolic. Here are the two exits. One for the long, one for the short. Is based on a trail concept that uses ATR. Okay. I'm just going to use the strategies as they come. All right. And let me disable account orders and positions so that I don't get confused with the other signals. So you can see that in some trades, especially on the ones that are flipping you back and forth without any significant trend, you get a lot of these exits kicking in. For example, here we have a short entry because we started a sequence of magenta dots, but then we have the exit to kick in and actually exited our short exit, our short entry on this bar. It was really close to where the long entry would have flipped you over, but you can see how the exit's kicking in. Maybe we need to be a little bit more conservative and making it closer. Here happened something very similar, too. We were in a long entry. We got a sequence of blue dots. But take a look at where the exit is generated. So there's a trailing LX that actually exited our long position because it actually the price went down again very close to where the flip was. But the idea here is that we have something that is allowing us to exit before the flip happens. Now if you were to come here to the strategy performance report, you can see that our profit factor went up by onetenth of a point. So it went from 1. 6 to 1. 7. Not a big improvement. Everything else remains the same. Reena index went a little bit higher and it does go higher and it's understandable because we are introducing an exit that allows us to reduce the time in the market. The more you are in the market, the riskier the strategy is. Now we're at 92% of the time, which is still a lot of time to be open in the market and exposed. Now we have a way of measuring that and that's the nice thing about Trade Station that it provides you all these tools so that you can measure how risky the strategy is and you know how confident you can feel about the strategy signals. Of course, the next step here would be for me to go in and start optimizing some of the parameters to see which parameters would provide me better results. But that would be a topic for a different presentation. Oh, let me just go ahead and dismiss this. You're right, James. If we were to add slippage and commission, it's a loser strategy for sure. Yeah, we had about 100 trades and there's no commissions on when you trade equities. in this case is trading Tesla. But there is the concept of slippage especially on this strategy that uses stop orders. I believe that let me go back here to the code because I think the parabolic s at least the entry. Yeah, it's using stop orders and stop orders. Yeah, they're open to slippage. There's a trigger price, your order turns into a market order, so there's definitely going to be slippage on that trade. Okay, so things to think about. So James, thank you so much for your input and everyone thank you for joining us in this master class. We do master class every so often. So make sure that you check our calendar for upcoming sessions. We do topics ranging from technical analysis, strategy testing and an easy language. So make sure you join us for any of those sessions. Have a wonderful day. Thank you again and I hope to see you in one of my future classes. Goodbye everyone. Great having you.