Parabolic SAR is the exact technical indicator for such a trading technique mentioned above. It is based on the current momentum, and it clearly shows the direction of price action, as well as points to exact moments when the likelihood of trend’s reversal is high. Parabolic SAR is represented by dots below (for uptrend) and above (for downtrend) the current price. Once dots jump from one disposal to another, that’s the perfect moment to consider starting the trading cycle if other indicators are in favour of that.
The secondary tool here is Stochastic oscillator with the main target to whether confirm the signal coming from Parabolic SAR or deny it. If the primary tool’s dots jump from being above the current price below it, and Stochastic is above the 50% level, then we consider starting the call-options cycle. And if Parabolic SAR jumps above the price chart, while Stochastic points to bearish momentum (less than 50), then we start monitoring MACD in order to purchase put options.
As long as we are looking for strong trends, MACD is the most suitable indicator to confirm the trading signal and filter false spikes as it has the trending nature. Reversal divergences and the MACD histogram could be used as an additional tool for the technical analysis. However, all we are monitoring in this trading system is MACD lines. We need to wait for a moment when lines perform a crossover at the same time or with a delay compared to the signal coming from Parabolic. That’s the third and the last condition before starting the trading cycle.
All of the indicators are used with default settings here, and there’s no need to change any parameter or period. Timeframes are also different starting from 15-minutes as shorter charts are full of fake signals. Any assets are possible to use, however, traders should make sure that the underlying asset is in a strong trend but not consolidation range. Exit conditions are the same as entry points, even a reversal is applicable is a signal point to the opposite direction. For example, if Parabolic SAR dots jump to the different condition, and Stochastic and MACD confirm the signal, then we could finish one trading cycle (buying put options) and start the second one (buying call options). An example of Parabolic, Stochastic and MACD Binary Options Trading System with USD/CHF on 1-hour chart in action is shown below.