Trend – There does not have to be a specific trend before the curve but you can find it at the end of a long uptrend.
Curve – The curve will most likely not happen in a smooth uptrend but it will be made from multiple small increases with short consolidation periods. This can be made up to 4 or more bases. The curve will start from a ‘best fit’ point and not necessarily from the start of the trend.
This pattern is not traded with any other indicator but is standalone. It would be traded once the price moves to the right of the trend line as a signal to either get out of a long trade or put on a short trade hoping to profit from the collapse.
This is one of the rarest chart patterns but most highly prized and sought after. This is due to traders being able to gain the biggest and quickest return in the shortest possible time. The pattern is the end result of multiple base formations break. It was first observed over 50 years ago and is based on the presumption that fast moving markets are unsustainable and prone to a rapid collapse.
The above example is one I traded in real time where there had been a steady uptrend in the Dow which trends for most of the day at a slight incline. There is then a massive pickup in the price where the incline then increases goes to vertical which confirms the parabolic curve. As the price changes very dramatically you need to know where to put in your short order. The entry point is well shown here, as after the last bar with a strong price increase you have a gravestone doji indicating a reversal point. You can then use a trend line before the increase in decline to produce a trend line you can use for a take profit level for when the price retraces back to the trend.