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Parabolic Filter
Parabolic filter checks any trading signal and validates or invalidates it according to the market's condition. This condition is determinated by the parabolic oscillator value :

Parabolic Filtering
- Bull Market = parabolic osc. > +threshold,
- Bear Market = parabolic osc. < -threshold,
- Flat Market = parabolic osc. between -threshold and +threshold.

There are two kinds of filter :
- 'Flat Market' Filter : all trading signals are invalidated during flat market,
- 'Trend Follower' Filter : a buying signal is valid if bull market is detected and a short-selling signal is valid on bear market only. All others trades are not valid (no trades during flat market and no counter-trend trades)...

Filtering Examples

DJI, Prices x MA 15

DJI, Prices x MA 15

DJI, Prices x MA 15, 'Flat Market' Parabolic Filter

DJI, Prices x MA 15, 'Flat Market' Parabolic Filter

DJI, Prices x MA 15, 'Trend Follower' Parabolic Filter

DJI, Prices x MA 15, 'Trend Follower' Parabolic Filter

Advantages and Disadvantages of DMI Filter
+ Filtering removes a large part of flat market zones (the 'eagle nests' of the first graphic).
- Filtering also removes the first trades when the market is beginning a trend. For instance, the 04/09/2001 buying (+11.8 %) is cleared by the filter.
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