EdgeWare FastGraph Version 3 - Manual (Page 55)

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Appendix A - Technical Discussion
Parabolic Stop
The parabolic stop system was developed by Welles Wilder and is documented in many
books on technical analysis.
The parabolic formula can be summarized as follows:
Par
2
= Par
1
+ Acc_fac x {high_of_trade - Par
1
}
Where:
Par
2
= Tomorrow’s parabolic value
Par
1
= Today’s parabolic value
Acc_fac = Acceleration factor
high_of_trade = Highest price since the trade was established
The fund is held until the mutual fund NAV becomes equal to, or drops below the Par
value. The initial value of the parabolic for a long trade is set to the lowest price reached
while the fund was trading below the parabolic.
Wilder suggested setting the initial value of the acceleration factor to 0.02 and increased
by 0.02 each time the trading vehicle (stock, commodity, etc.) hit a new high during the
trade. He also suggested a maximum value of 0.2 Traders using this function for mutual
funds have found the 0.02 increase for each new high to be too large a value. A more
reasonable value is in the 0.001-0.0001 range. FastGraph allows the user to set the start-
ing, maximum, delta increase.
Bollinger Bands
Bollinger Bands were developed by technical analyst John Bollinger. See a good book
on market technical analysis for an explanation on how to best use this indicator.
Bollinger Bands are plotted two standard deviation above and below a simple moving
average. The data used to calculate the standard deviation are the same data as those
used for the simple moving average.
Upper band = X + 2*
σ
Lower band = X - 2*
σ