MARTIN PR.ING ON MARKET MOMENTUM

MARTIN J. PRING

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McGraw-Hlll

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S..:>n Frandt.coUer1989, pp.411-413.

22.0 Table 9. 1

Martin Pring on Market Momentum

ParaboliC T1me/Pnce Performance Results

-=0010 0.20

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0 iO

-

..41

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3,11110

2.120

tOJ)ii

!02

iO

I

-4.3'0

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-4.716

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...

- -I7.110 1>

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- "..115"

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0.10

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0.4>0

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U111

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2M"

-2.700

..6.6at

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75

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0,00,0

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4.1

>7.710

-'12.005

Teat results based on January 1984r 1988 perpetual contJactS,$100 per tr ado lor alip ge andcommissions. Cotton produced the higheSI percenlage ol winning trades under the parabolic stop method.although coffee showed the greatest prof1t betwHn 1Q84 and 1988. Pater Aan ."Parabolic Stop!Reversal;T&chnical Analysis ol Stocks & Commodities. Nov. 19851.pg 412.

Chart 9.6

S & P Composite and Parabolic Stop Po1nts

... ... 1\\ - -. ... ...Od

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bear market and the beginning of the subsequent bull market. During the sharp August decline and the advancein earfy1991,the system didremarkably wellbut dur ingtheinterveningtrading range it did not. This is not surprising since the system is supposed to be a trend-following and not a trading-range scheme.

The Commodity Selection Index and the Paraboltc: System

221

One problem Ihave with the system is that the initial stop point can often occur a long way from the entry point. In chart 9. 7, for example, a trader would have gone long at the mark near the 70cent level inlate September, but the stop would have been close to 65 cents.That's a very wide marg oferrorfora system that has in the objective of t ght stops. Because o1the acceleration factor the i pos tion wouldhave been stopped at 67 cents,still a sizeable loss. The short sale from which the long position was reversed would haveinvolved even more risk, since the stop point was the 72-cent high.As lt turned out, this trade was profitable because of the very sharp decline that followed and was eventually covered at around 64 cents.However, when youconsider that the initialrisk was close to 5 cents and the eventual profit about 3 cents, you can readily appreciate that the risk reward was not particul rly attractive. a I believe that the SAA should be used as a stop only (SO) method.Inother words,it should be used in conjunction with other indicators. For example, if the violation of a price and an ASI downtrendline generates a buy signal then the Parabolic System couldbeset inmotJon.using the previous low as the stop pomt. The system would be used only if the stop were fa irly close. If it is necessary to enter a trade using a wide stop, this automaticallyChart 9.7 Deuts

242

Martin Pring on Marla6

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AI...,._ "'-..,. ,.,.. ltn TfXTBOOK 5275.00 WITHOUT BOOK $245.00 TfXTBOOK ONlY $49.95

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