SURPRISE, GREED, AND EXHAUSTION

When you see prices follow a parabolic path, trades will follow. The parabolic path is a
general phenomenon of energy transfer. Figure 13.3 shows the general equation for what
is called a “cubical parabolic hyperbola.” This equation closely models the path often
taken by forex prices. This should not be a surprise because parabolic patterns are about
energy flow and its subsequent loss. When you throw a ball, it follows a parabolic path
as it loses energy.
Parabolic paths of forex prices are patterns that show many emotions. First is surprise
when the price has a quick and big move. Then there is greed as traders rush in
to take a ride on the move and take the path to altitudes approaching 90 degrees. It is
unsustainable. At the apex, the trader can anticipate a sell-off. The parabolic is not necessarily
a reversal indicator, but it is an indicator of exhaustion. Often, the sell-off works
within the Fibonacci levels and the prepared trader can look to trade in the direction of
the original move—after the price stops at the Fib level. Look what happened in Figure
13.4 to the euro–U.S. dollar (EURUSD) parabolic and Fib combination.

Figure 13.5 shows a U.S. dollar–Canadian dollar (USDCAD) 90-minute chart with a
classic parabolic followed by a sideways sell-off and then a downward parabolic.


By ABE COFNAS