‘Parabolic SAR and Awesome’ binary options trading strategy was designed to search for exactly same periods. It has several technical indicators with the different mathematical background which helps a trader to analyse current momentum from different points of view. At the same time, this strategy’s best performance is achieved on short-term timeframes such as 30-minutes and 15-minutes, which are the most popular expiration periods for binary options. Regarding the financial instruments, EUR/USD and USD/CHF currency pairs are preferable for ‘Parabolic SAR and Awesome’ trading technique, as they are the most technically correct due to the high trading volume, lower volatility and the absence of sharp whipsaws and sudden reversals.
The main technical indicator is Parabolic SAR here. Its dots are usually placed below the current price during an uptrend and above the chart when a downtrend is more likely. Parabolic SAR compares close prices during a given period, pointing to a more probable price direction in the nearest candlestick. It also shows reversal points when the dots jump below (bullish reversal) or above (bearish) the price. However, this trading strategy is based on by-trend approach and those moments are not considered as a trading signal. The only analysis that we have to make with Parabolic SAR is just to assess the current trend.
A second technical indicator is Awesome Oscillator. It works as a confirmation tool, however, it’s importance cannot be underestimated. The reason is that Awesome oscillator shows the market momentum with its histogram being above (uptrend) or below (downtrend) zero level. Colours of bars also matter as sometimes it happens that bullish momentum is getting exhausted during an uptrend, signalling a possible consolidation period or even reversal likelihood. Both options are not acceptable for continuous trading on binary options market as traders are looking for a stable price action to maximize the profit. In that case, Awesome oscillator changes the colour of its bars from green to red (uptrend, bearish threat) or from red to green (downtrend, bullish threat), even if they are above or below the zero level, respectively. And again, those signals are not considered as the best trading signal for this strategy. Moreover, traders should stop buying options in the same direction once that happens. We’re looking for continuation signals here, so Awesome oscillator should keep the colour of its bars during the trading process.
The third technical tool is a 5-bars exponential moving average. If both indicators described above signal a trend continuation but the price bounces against the main tendency, crossing the EMA5, a divergence occurs, pointing to a perfect entry point on the candlestick close. Once the price crosses EMA5 from above, it’s time to get ready for buying call options while put options should be bought with the opposite case, when the price crosses EMA5 from the downside. Traders should keep buying the same options until Parabolic SAR dots jump above the price (call options) or below the chart (put options). The cycle has to be stopped also if Awesome oscillator changes the colour of its bars from green to red (call options) or from red to green (put options).
An example below shows the ‘Parabolic SAR and Awesome’ binary options trading strategy in action with two trading cycles on EUR/USD 30-minutes timeframe. As we can see from the chart, the strategy gives more than 90% efficiency.