In the realm of binary options trading, one of the most crucial elements is the ability to predict market trends with precision. Success often hinges on entering the market at the right moment, especially when a trend is just beginning to take shape. Many traders, in pursuit of this advantage, seek signals that indicate potential reversals or corrections, strategically positioning themselves for profitable ventures.
The optimal moment to initiate a digital contract is when there’s a discernible shift in the prevailing trend. Accurately predicting price direction is the key and doing so at the inception of a trend’s development often leads to a high likelihood of success.
This is precisely why many binary options traders favor using signals that indicate a potential trend reversal or correction as their entry points.
Nonetheless, pinpointing the precise point the reversal is a challenging task. Fortunately, there are tools to assist, with one of the most valuable being the Parabolic SAR. Its primary advantage lies in its real-time responsiveness — it neither anticipates nor lags behind market events. Consequently, it offers current trend information, enabling timely contract execution.
Of you use the Pocket Option trading platform, you can find Parabolic Indicator preinstalled, ready for online trading.
About the Parabolic Indicator
The renowned trader, W. Wilder introduced the concept underpinning the functionality of the Parabolic SAR indicator. He also created many other tools designed for technical analysis and trading strategies.
Interestingly, the name of this indicator aptly mirrors its visual representation. When integrated into the workspace, the Parabolic SAR populates the screen with multiple parabolic lines.
As for the recommended setting, please use a minimum acceleration of 0.02 and a maximum acceleration of 0.2. The mathematical formula is rather complicated but fortunately, you do not have to solve it manually.
When it comes to executing trades based on Parabolic SAR signals, it’s advisable to focus on timeframes ranging from M30 to H4, particularly when dealing with binary options. While this market isn’t particularly conducive to medium-term trading, employing this strategy yields relatively infrequent but highly precise signals, devoid of market noise.
How to trade with Parabolic Indicator
As previously mentioned, many binary options traders focus on reversals or corrections. In light of the conditions outlined above, the start of new trend is recognized when you see a point on the opposite side of the price chart.
Williams identifies four distinct states for this indicator:
- Points located below the price chart denote an upward trend.
- Points positioned above the price chart signify a descending trend.
- When the gap between these points increases, it indicates a strengthening trend.
- When the gap between these points decreases, it suggests a weakening trend.
Using the Parabolic as a reference, you can:
Execute a CALL option when a new point has materialized below the price chart. This indicates the potential commencement of an upward trend, which presents a favorable opportunity for buying contracts and participating in the bullish market.
Conversely, a PUT option should be acquired when a dot emerges above the most recent price bar. This signifies a potential start of a downward trend, making it an opportune moment to engage in the market with a bearish perspective.
The expiration must equal the time of formation of at least two bars.
In conclusion, understanding how to work with the Parabolic SAR indicator is a valuable asset for binary options traders. By interpreting the states of this indicator and making informed decisions based on the appearance of a new point on the opposite side of the price chart, traders can strategically choose between CALL and PUT options. Utilizing the Parabolic SAR as a guiding signal allows traders to align their trades with the prevailing market trends, ultimately enhancing their potential for success in binary options trading.
