Many people mistakenly believe that financial trading and geometry fall into two different categories. In addition to the arithmetic connection, geometry is also used for technical analysis indicators. These genius minds with passion gave birth to the Parabolic Sar indicator describing price action according to geometry.
This article will introduce to you what the Parabolic Sar indicator is, its principles of operation and how to use effectively in trading are also available.
Video on how to use the Parabolic Sar in IQ Option trading
What is Parabolic SAR?
Parabolic SAR is a technical indicator used to determine price direction, as well as give a warning when price direction is changing. The Parabolic SAR indicator is called the “stop and reverse system”, developed by Welles Wilder, author of relative strength index (RSI). Traders use it to trade popularly because of its versatility.
Operation principles of Parabolic Sar
On the chart, the Parabolic SAR indicator appears as a strip of dots located above or below the price candlesticks. When the dots stay below the price, it signals an uptrend. On the contrary, if the dots stay above the price, it indicates that the price is in a downtrend. When the dots switch their position relative to the price, it indicates that the price direction may be about to change in the future.
For example, if the dots are above the price and moving to below the price, it could signal an increase in price.
Parabolic Sar signals an uptrend.
Capital management method for Parabolic SAR
It can be said that capital management is considered the survival of a trader. So the low-risk method makes the mind comfortable in finding profits.
The Classic method can limit risks while helping your balance grow steadily. With a winning rate of 60% or more, you will not be able to lose money when investing. This is a risk management method used in many top-notch strategies.
How to use the Parabolic Sar indicator in Binary Options trading
For the effective use of Parabolic Sar, we should combine it with other basic indicators. We can combine it with MACD, Bollinger Bands, SMA, etc., to improve the accuracy of the order when the signal shows up.
In combination with resistance/support
Conditions: The Japanese candlestick chart, Parabolic Sar and the expiration time from 10 to 30 minutes.
Open a HIGHER order when: Parabolic Sar is below the Japanese candlestick chart and the price enters the support zone.
Explanation: In an uptrend, the Parabolic Sar indicator is below the Japanese candlestick chart. When prices enter a support zone, the bulls may regain control of the market and make the price rebound. At that time, it is safe to open a HIGHER order following the main trend.
Open a LOWER order when: The price continuously breaks out of the lowest troughs to form a downtrend. The Parabolic indicator staying above the price signals for investors to consider opening a LOWER order. If the price enters the resistance zone, it is unlikely to continue to rise. That is when you can invest your money because the win rate is very high.
Combine Parabolic Sar indicator with reliable Japanese candlestick patterns
The Japanese candlestick pattern is a very reliable trading signal for traders. You can combine it with many different indicators to find reasonable entry points.
Conditions: The Japanese candlestick chart. The expiration time of 10 minutes to 30 minutes.
Open a HIGHER order when: The Morning Star candlestick pattern appears at the support zone and Parabolic Sar is below the Japanese candlestick chart.
Explanation: The uptrend is when the Parabolic indicator is below the candlestick chart. The price returns to retest the support just passed. Right at the support zone, a Morning Star candlestick pattern appears. The possibility of prices to continue to rise is very high. This is the safest time for opening a HIGHER order following the trend.
Open a LOWER order when: The Evening Star candlestick pattern appears when the Parabolic Sar indicator is above the Japanese candlestick chart.
Explanation: The Parabolic indicator above the Japanese candlestick chart signals a downtrend. The Evening Star candlestick pattern appears signaling the continuation of the trend in the near future. You can open a LOWER order as soon as the candlestick pattern appears completely.
Be cautious in every trade when the risk is permanent. If you lose focus, you will pay. If you want to go far and fast in fixed time trading, you should consider the trend as a companion.
You can trade with a demo account to experience the strategy we have introduced. If it works, you can keep it as your own money-making formula.
In the near future, we will trade with real accounts to prove its effectiveness. You can follow us to catch up with the latest articles.