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Trading Binary Options using the Parabolic SAR

What is the Parabolic SAR

The Parabolic SAR is a technical analysis indicator that is able to identify the momentum of the price of an asset, in other words, the direction of the master trend. The parabolic SAR was originally created by Welles Wilder. Review popular binary options brokers: Banc De Binary Scam.

Let’s see how can we can trade Binary Options using the Parabolic SAR. Let’s suppose a trader choose to trade EURUSD in a short-period time frame. Here is a EURUSD 1-minute chart.

Chart: Parabolic SAR on EURUSD

Trading Binary Options using the Parabolic SAR

There are some important steps for any trader that decides to trade using the Parabolic SAR:

1) The trader switches its view to the 1-minute chart.

2) The indicator Parabolic SAR is added.

3) The original setting of Parabolic SAR 0.02 0.20 is maintained.

4) The trigger involves the time when the asset price will cross the Parabolic SAR.

5) If the next asset price will be in the same direction as the cross then an entry signal occurs. That means that the trader opens a position in that same direction.

- If the next asset price is in the opposite direction to the direction of the cross then there is no signal


The Role of the Dots in Parabolic SAR

The positioning of the dots in Parabolic SAR may generate visual trading signals.

◘ When the Parabolic SAR dots are below the current asset price then it is a signal of an ongoing bullish trend.

◘ When the Parabolic SAR dots are above the current asset price then it is a signal of an ongoing bearish trend.

As the price of an asset rises, the Parabolic SAR dots will rise too. The dots will start rising slowly at the start and then accelerating towards the current trend. The Parabolic SAR is much more effective when an asset price follows a certain trend. If an asset price is moving sideways during a particular day then the Parabolic SAR may lead traders to a series of false signals.


Timing is Everything when you Trade using Indicators

Almost every technical analysis model can generate value for traders but the important variable is always the correct timing. You must know what indicator to use each time, and most importantly when to use it.


The use Parabolic SAR

The Parabolic SAR is used by many traders as a tool determining the optimal stop-loss levels. As an indicator, it is also popular among traders that are designing their own trading strategies. In order to deal with the possibility of false signals, traders may use the Parabolic SAR along with another indicator. For example by combining the results of parabolic SAR with the results of a moving average or with the MACD.


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