Parabolic describes a market that moves a great distance in a very short period of time, frequently moving in an accelerating fashion that resembles one half of a parabola.
Movements can be either up or down but usually are up.
When prices arc upward at an ever-increasing speed, they form a parabolic curve, which should cause us to feel ever-increasing caution.
With parabolic moves, we never know when the final top will arrive because of the frenzy of buying driving the move, but we know that vertical moves cannot be sustained, and ultimately we can expect that the parabolic will collapse, with prices falling as quickly as they advanced.
Parabolic up moves are exciting to ride, but there is the almost certain danger that the rocket will run out of fuel, resulting in a rapid collapse of prices.
Trying to pick the final top for this kind of move could be hazardous to one’s health, but being aware of the potential danger can be useful in managing positions.
Vincent Nyagaka is a Professional Trader, Analyst & Author. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Check out Vincent’s Professional Trading Course here.