Parabolic Stock: Everything You Need to Know

A In all financial markets, a parabolic move is a frequent occurrence. Parabolic moves are short-term price fluctuations. The price value of a stock will often decline sharply after a parabolic move.

Parabolic moves frequently characterise financial markets. Traders who know how to trade them present an excellent opportunity to make huge returns quickly. It describes when a stock's price moves upward at an exponential rate: A parabolic move indicates the speed at which the price increases exponentially. In other words, a stock that goes up fast is parabolic. An example of a parabolic stock would be one whose price rises rapidly in a short period. The price action pattern of parabolic price moves is repeated throughout the financial markets.

Stocks that trade at $10, for example, can suddenly jump to $12, then $14, and then $20 in a matter of a few days. A parabolic move is said to occur when this happens. Thus, you have the opportunity to make a fortune in stock trading if you pick the right stocks. Small-cap stocks are more likely to experience parabolic price moves than larger companies. Penny stock companies or stocks linked to alternative asset classes, such as commodities (e.g., gold and silver) or cryptocurrencies, are included in that category.

It is risky if your timing isn't right or your strategy isn't right. Investing in parabolic moves and learning to trade them is essential if you hope to profit from them.

What is a Parabolic Stock?

Parabolic moves are short-term price fluctuations. The price value of parabolic moves will usually fall sharply afterwards. The faster the price action accelerates, the more likely longs are to take profits, while short-sellers are more likely to enter the market since both know that a sharp decline in price action is coming.

As trader slang, the term "parabolic move" evolved. If a stock moves upward on the right side of a parabolic curve, it is said to be on the right side of the curve:

During a parabolic move, the stock's price increases exponentially at an increasing rate. Parabolic stocks are stocks that start going up fast.

That is how a typical parabolic move on a stock looks:

The stock price that has seen an exponential increase is called a parabolic stock. The parabolic move of stock refers to the rise in price appreciation compared with previous price movements. The $50 stock price grew by $1 per day for five days. The stock value increased by $5 on the sixth day. The price action has accelerated compared to prior price movements, so we call this a parabolic move. Parabolic moves are short-term price fluctuations. Sharp price declines often follow parabolic price moves. Short sellers know that a sharp decline in price action is coming, so both take profits and enter the market as the price action speeds up.  

It is usually less than 1% that shares move in most cases. Demand and supply are usually the reasons for this. Stocks can make significant moves during specific periods. Following a few days of consolidation, the price suddenly jumps here.

Small-cap companies and penny stocks are usually known for these parabolic moves. Similarly, other financial assets such as commodities, cryptocurrencies, and currencies suffer from the same problem.

Parabolic Stock Examples

As an example of a parabolic stock, BPTH is an excellent choice. Look at its daily chart, and you will notice how its value increased exponentially over just one day: 

This chart shows how it went from $7 to $14 on March 6. Since just a few days ago made a move from $3 to $9, that wouldn't be considered a parabolic move. There hasn't been a speedup compared to prior price action. Therefore, you would not want to be shorted in such a situation. The parabolic move took place on December 7. In just two hours, the stock went from about $18 a share to around $73!  

Another excellent example of this was when Wall Street Bets took place in early 2021. AMC Entertainment and GameStop's stock prices rose by over 300% within days of being posted on social media. Some meme coins, such as ShibaInu and Dogecoin, saw parabolic moves in the cryptocurrency market.

What Causes a Parabolic Moves?

Almost endless factors can cause a stock to move in a parabolic pattern. Several causes of parabolic moves in stocks exist, and they differ significantly from one another! That is why you should also understand the stock environment you intend to analyze so that you don't incorrectly interpret signals. Nevertheless, there are several causes of parabolic stock moves that can identify:

Social Media Campaigns

Social media is crucial to move stocks. Before GameStop, Hertz and other companies saw parabolic share price moves. Social media users pumped up the stock even after the company went bankrupt.

Retail traders have successfully used social media to bid up stock prices by creating large groups. The situation was especially problematic for stocks with a high short interest, where many traders were shorting the stock. When a stock's price increases significantly, it is called a "short squeeze."

The closing of short positions is necessary to prevent catastrophic losses for short-sellers. As a result of their market exits through buy orders, their stock prices are more likely to rise. As a result, the stock price will eventually increase parabolically.

The hype surrounding a company on social media can also cause a stock to move in a parabolic direction. It must be wide enough to attract retail investors no matter the case.

M&A DEAL

After a merger deal is announced, stocks can move in a parabolic fashion. When a more prominent company announces it will acquire a company for $28, that company's share price will rise astronomically. Other companies, which might also become targets, may experience this phenomenon.

FED DECISIONS

A Federal Reserve policy change could cause a significant increase in stock prices. A sudden turn by the Fed towards dovishness, for example, could boost stocks of certain companies. It is generally true that growth companies outperform value stocks during low-interest rates.

Unexpected, Highly Positive Company News

It is possible for a new announcement by a company to trigger a significant parabolic move. An unexpected, unexpected, and very favourable event may cause a company's stock price to soar like a rocket to the moon, such as securing a large government contract or publishing solid earnings per share (EPS) reports.

Government Policy Changes that Affect Financial Markets

In many industries, government policies and legislation can significantly impact fortunes. The coal industry can find examples of stocks that have experienced the opposite of a parabolic price rise. Almost all businesses in this industry have been legislated out of existence over the last decade.

On Other Wall Street, companies like those in the renewable energy sector have profited from significant government subsidies.

How to Find Parabolic Stock and Moves?

The parabolic indicator buys or sells signals when the dots move from one side of the asset's price to another. The dots on a pattern display a buy signal when they move from above to below the price, and the dots on a pattern display a sell signal when they move from below to above the price.

No matter what the price does, the PSAR moves. The PSAR will still rise despite the sideways movement in the price if the price initially rises but then moves sideways. Price will drop eventually, even if no reversal signal is generated. A reversal signal is generated when the PSAR catches up to the price. Therefore, a reversal signal on the indicator may not necessarily indicate that the price is reversing.

Each time the parabolic indicator moves opposite the price of an asset, it produces a new signal. As a result, active traders find the indicator attractive because it permanently keeps them in the market. The indicator is most effective in trending markets, where large price movements allow traders to gain significant profits. As long as a security's price is range-bound, the indicator will continuously reverse, resulting in many losses or low profits.

When using parabolic indicators, they should be used in conjunction with additional technical indicators, such as an average directional index (ADX), moving averages (MAs), or trendlines.

With a stock screener, you can find penny stocks making parabolic moves quite quickly. There are several ways to spot companies that are making parabolic moves. Subscribing to a free watch list that sends you the biggest movers early on is one of the best methods. The chart below shows how this move has parabolic characteristics. 

Parabolic Curve Stock Chart Pattern

The name of this chart pattern comes from the parabola since the ascending curving line used to trace this pattern from candlestick price action resembles a parabola. These patterns can often persist for several weeks, even months. It looks like a staircase when price action patterns create the parabolic curve. The pattern can provide traders with incredibly high returns within a short period if they know how to trade it.

In general, you will notice that the trading opportunity for parabolic curves patterns typically occurs at or near the end of a significant market advance, and the pattern typically forms when multiple base formations break. An experienced trend trader can benefit from a high return price pattern like this within a short period.

As the formation unfolds, the price usually makes the most significant move straight up into extremely overbought territory, only to crash as suddenly as it rose with a dramatic price drop. It is among the most robust chart patterns indicating a stock is in an uptrend. Since it is under the most vital accumulation, it goes up farthest and fastest, and traders and investors snap up every slight pullback. 

A parabola is named after the parabolic curve since the ascending trend line that measures the strength of this pattern is similar to the shape of a parabola. This substantial price pattern can yield incredible returns to a trend trader quickly.

At the beginning or end of a bull market advance, you may see stocks going up in this manner. As the price keeps rising, this pattern creates short-term price range bases that are broken and repeated multiple times. A parabolic curve is made via a price action pattern similar to a staircase. It can last for several weeks or months. As the price moves abruptly upward into overbought territory near the end of the formation, it ends abruptly in a price plunge that falls even faster than it rose.

Growth stocks with new products, new technologies, new business models, or new leadership typically exhibit these patterns. Market leaders tend to show these patterns. When trading a solid trend, it's essential to capture as much of the move up as possible with trailing stops and to have a plan to get out and lock in gains and not ride it back down.

Parabolic Curve Chart Pattern Example:

How to Trade Parabolic Stocks?

There are several reasons for trading this pattern. It usually moves rapidly, offering the opportunity to make fast money. As such, you should be aware of moves that take place quickly and get in soon before the end.

Additionally, it can detect accelerated trends within an overall uptrend. You can make a successful trade based on the pattern's specific entry and exit points if you know what to do.

You can earn significant returns from parabolic moves in a short amount of time. The risks associated with them, however, are high. You must exercise self-control and manage your money carefully if you trade parabolic stocks. Use stop-loss orders to help limit your risk when dealing with curved trends. Trading parabolic stocks successfully requires timing; timing is crucial. As the stock's price changes so dramatically and rapidly, being too early or too late when entering or exiting the market can mean the difference between making a fortune and a financial disaster.

The perspective of both a long and short-seller can help understand a parabolic move. Knowing when to take profit on a position after a parabolic move takes is how long to recognize a parabolic move. It is also a time to avoid taking a long position during this pattern. As a potential shorting opportunity, this pattern should be recognized by short-sellers. It is possible to make a massive return in a short amount of time (if you find shares that are too short). 

Traders can make money by trading parabolic stocks. They do, however, present certain risks. One thing is common: parabolic moves happen so quickly that you will likely miss the first one. The good news is that you can earn money in the future! When a parabolic move occurs, there are usually two possible outcomes.

For the stock to continue rising, the stock first needs to consolidate and form a flag or pennant. In addition, as with GameStop above, the stock could retreat and return to its previous level. If a bullish consolidation move is spotted, you can buy the stock and hope it will continue to rise. Nonetheless, if you don't spot any pattern, you can short it in hopes of seeing it drop. However, parabolic stocks are vulnerable to short squeezes, so be careful. A stop loss on all your trades will help to reduce your risks. Size your position well, and always have a stop loss in place. 

Final Thoughts

The process of trading parabolic stocks is relatively simple, but you can lose a lot if you do the wrong thing. It is relatively easy to trade parabolic stocks, but it can result in significant losses. Here, we have discussed what a parabolic move is, what causes it, and some strategies to minimise its risks.

Moreover, trading the pattern is not without its pitfalls, however. A pattern should touch two points in the trend line to be considered a parabolic curve, but three points are ideal. That is a price action chart pattern, so you don't need other indicators. When the trend line mark is broken to the right of the price action, you go short immediately.

Parabolic stocks offer investors the chance to make a LOT of money in a short period, which is what every investor wants. Short and long term traders can both benefit from these stocks. Typical parabolic patterns involve a sharp rally followed by a more gradual decline. The keys to winning parabolic stock trades are as follows:

• Get into the market early by using technical indicators, whether buying the rally or shorting it.

• Limit your risk by using stop-loss orders

• A parabolic stock move can give you a nice profit if you're able to catch even half of it. Be careful not to let greed tempt you into staying too long in the market, only to see your gains disappear.