Parabolic SAR Strategy – Introduction
We have shown you many different trading strategies in our Olymp Trade Strategy series of articles. But now, we will write something more about very popular and well-known strategy called Parabolic SAR strategy. Parabolic SAR indicator is an analogue of the moving average. We have written more about that in our Moving Average Strategy article. Parabolic SAR indicator calculates the average value that the price of observed asset has reached in the past. It is also capable of predicting future developments. This indicator is usually depicted using the dotted line (blue dots). When dots are positioned below the price chart (candlesticks for example), it means that now price is going upward. If the dots are positioned above the chart, it indicates that price is going downward. When you know this, you can use Parabolic SAR indicator easily in any trade.
Features of Parabolic SAR strategy:
- Easy to use
- Only one standard indicator necessary
- A signal to open a trade is given by the indicator itself
- Very simple and clear system
- Does not require detailed preparation for trade
- You can practice with any currency pair
- Any time frame will do
Parabolic SAR Strategy – Receive Signals
Using this trading strategy helps you pin point exact entry points, meaning right moments to make a trade. All you need to do is to look at the chart (see picture above) and notice if the price chart is crossing the dotted line of the indicator. If this happens, Parabolic unfolds and then continues moving on the opposite side of the price. E.g. if price chart crosses indicator’s dotted line from top to bottom this means that trend has overturned and price is going downwards. When dot “jumps” from one side of the price chart to the other this signals trend has ended and it is about to reverse.
The term of the transaction should be set as follows:
Candle time frame – 5 minutes = Binary option deal time – 5 minutes
Candle Time Frame – 15 minutes = Term of a binary option transaction – 15 minutes
When to open a Call/High binary option? (UP)
Good time to make a “UP” trade is when dot above the candle (or line in price chart) is replaced by a dot under the candle and the indicator is moving below the price chart. The first dot after the change of direction should be taken into account. But second dot after the change of direction should be considered as a signal to open a transaction “UP”.
When to open a Put/Low binary option? (DOWN)
Binary option “DOWN” should be opened when dot below the candle (or line in price chart) is replaced by a dot above the candle and the indicator is moving above the price chart. The first dot after the change of direction should be taken into account. But second dot after the change of direction should be considered as a signal to open a transaction “DOWN”.
Parabolic SAR Strategy – Olymp Trade Recommendations
- Always trade at the same time interval
- Don’t invest more than 5% of your entire balance into one transaction
- Try to use fixed amounts in transactions
Very soon you will become familiar with this strategy and be able to use to your advantage. We wish you good luck!
Parabolic SAR Strategy – Conclusion
Like with any other trading strategy with parabolic SAR strategy timing is crucial. Make sure you don’t mix many trading strategies at the same time. You can pair parabolic SAR strategy with one more, but that’s it. Otherwise you get confusing signals. Read more about Trend Trading and Ladder Trend Strategy, because that one could be suitable to combine with parabolic SAR strategy. Definitely don’t pair it with moving averages because that is very similar indicator, you will get the same readings from the chart so it’s not helpful.
When speaking of timing your trades, you will become good at it only by practicing. The best way to practice trading is to open free demo account at Olymp Trade. All you need to do is to click on the button below the text, go over to Olymp Trade web site and create account. You don’t need to deposit any money until you are ready to trade for real. You can read about their demo account in our article: Olymp Trade Demo Account. For more interesting articles on trading strategies you can read our Olymp Trade Strategy series of articles: Binary Gambit, Ladder Trading, Trading By The Hour, Trading With Moving Averages, Trading Metals and Japanese Candlestick Strategy. If you are looking for more information about Olymp Trade make sure you read our comprehensive Olymp Trade broker review.