Parabolic Short Methodology
Adapted from Qullamaggie's three "timeless" short setups. The thesis: parabolic moves end in mean-reverting blow-offs, but shorting too early — while the move is still climbing — is the single fastest way to lose money. The setup framework below exists to delay entry until exhaustion is visibly confirmed.
When a stock qualifies as parabolic
Daily-chart preconditions, all of which must be true:
- 5-day return ≥ +30% (
safe_largecap) or ≥ +100% (classic_qm). - Latest close ≥ +25% above the 20-day SMA, AND ≥ 4 ATR-units above it (volatility-normalized — small-caps with high ATR aren't penalized).
- Three or more consecutive green daily candles AND an acceleration ratio (3-day mean return / 10-day mean return) > 1.0.
- Latest-bar volume ratio (vs 20-day average) ≥ 1.5×.
- Liquidity floor: 20-day average dollar volume ≥ $20M
(
safe_largecap) or $5M (classic_qm).
These aren't a trade trigger — they're a watchlist filter. Entries are intraday on one of the three trigger types below.
The three trigger types
1. 5-min Opening Range Low (ORL) break
The cleanest setup when the open prints a wide first 5-minute bar. Mark its low. If a subsequent 5-minute bar prints below ORL on ≥1.2× the ORL bar's volume, short the break. Stop above session HOD plus 0.25 ATR.
2. First Red 5-minute candle
When the open is straight up — a series of green 5-minute bars extending the parabola — wait for the first red 5-minute candle. Short the break of its low. Stop above its high. This is the safest variant when the open gaps into resistance.
3. VWAP fail
After a "first crack" — price collapsing off session HOD toward VWAP — let it retest VWAP. A 5-minute close back below VWAP plus a lower-high break is the entry. Invalidates instantly on a 5-minute close back above VWAP (the "VWAP reclaim").
Invalidation rules
Hard skips, applied before scoring. See short_invalidation_rules.md
for the full list.
Why state caps matter
Parabolic candidates are by definition hitting fresh highs with strong
closes and expanding volume — exactly the metrics that, in a trend
template, would qualify them as bullish. The skill flags candidates
that closed near their session high at a fresh 52-week high as
state_cap: still_in_markup so Phase 2 can mark them
plan_status: watch_only until intraday weakness shows up.