As binary option trading is becoming more and more popular more people want to learn successful trading strategies. Fortunately, the trading strategies are based on indicators that do not require advanced mathematical skills because they are embedded in the trading terminal. Even beginners can understand the basics and make informed decisions in trading. Luckily, charting software does all these calculations for traders.
One of the successful strategies is based a Parabolic SAR and it is often used in combination with ADX.
In the Pocket Option terminal traders can find both indicators in the list of standard indicators. Learn more about Parabolic trading system and test it in your demo or live account.
More about Parabolic SAR indicators
Welles Wilder invented this trading indicator and the Parabolic SAR stands for “stop and reverse”. In an uptrend, dots form under the price until price reaches a certain point when it flips to the top of price giving you a sell signal. The tool is built directly on the price chart.
During the uptrend, the dots are positioned below, as if supporting the chart. When the candle goes beyond the parabola, there is reversal signal and the dots are formed above the chart. During the downtrend, everything happens exactly the opposite.
Consisting of 3 intersecting lines, ADX is an oscillator that is located in a separate window under the chart.
The main line is called ADX: it indicates the strength of the current trend. The higher the line – the stronger the trend. However, in order to effectively use the Parabolic Trading system, we will need signals from the + Di and -Di lines. Everything is simple here: if the positive line crosses the negative line from top to bottom, it indicates a downward momentum. And vice versa.
The recommended settings for both indicators are as follows:
- Parabolic SAR: expiration acceleration 0.01 (default 0.02), maximum acceleration 0.2;
- ADX: both periods are equal to 14, as set by default in the Pocket Option terminal.
How to trade with parabolic strategy?
Now when you’ve figured out the indicators and the strategy, it’s time to start trading. The Parabolic trading strategy is good for any type of trading – short-term or long-term. Therefore, set the timeframe at your discretion.
The asset must be highly volatile. We recommend trading currency pairs like EUR/USD or GBP/USD. You can also try volatile cryptocurrencies.
Parabolic SAR works well only with the presence of a pronounced trend.
The CALL contract when the candle broke the parabola from below, the dots are formed under the chart, and +Di crossed -Di from bottom to top.
The PUT contract when the candle broke a parabola from above, the dots are formed above the chart, and +Di crossed -Di from top to bottom.
The expiration period should be equal or more that the formation of 2 or 3 candles to avoid market noise on lower timeframes.
The main advantage of the indicator is that, during a strong trend, the indicator will highlight that strong trend—keeping the trader in the trending move. The indicator also gives an exit when there is a move against the trend, which could signal a reversal. Sometimes this ends up being a good exit or bad exit.
The major drawback of the indicator is that it will provide little analytical insight or good trade signals during sideways market conditions. Without a clear trend, the indicator will constantly flip-flop above and below the price.
That is why it is recommended traders learn to identify the trend—through reading price action or with the help of another indicator—so that they can avoid trades when a trend isn’t present, and take trades when a trend is present.
