A stock moves parabolic at the end of extreme uptrends, and is seen when panic buying sets in and prices are driven vertical. During a parabolic uptrend, there is almost a complete absence of sellers, which creates a vacuum of buying. This occurs only in momentum stocks as traders rush to just get into the stock regardless of price, in fear of being left behind. Parabolic moves can make the largest price moves in the shortest amount of time, but are dangerous places to buy stock when you overstay your welcome. When a stock moves parabolic, it often marks the end of a move with prices not returning to the ultimate highs again for a long time.
Example of a parabolic uptrend:
This stock went parabolic and gained in volume and price move at the end of the run. What began as an uptrend quickly became panic buying, driving the stock vertically higher.
Capitulation is the opposite of panic buying and parabolic uptrends.
Return to the main chart patterns page to learn more trading terms.
