In options trading, most of trend indicators only confirm whether the market is rising or falling. But in this article, I will introduce you to Parabolic Sar indicator. It not only can predict the price trend but also signal accurate reversal points in a short period of time.
What is Parabolic Sar indicator?
Parabolic Sar is a technical indicator used to determine the direction of a price, as well as a warning when the price changes. It is also known as “Stop and reverse system”.
How does the Parabolic Sar work?
On the chart, Parabolic Sar appears as a strip of dots placed above or below candlesticks. When the dots below the price are considered as the bullish signal. On the contrary, the dots above the price show that the price is in a downtrend.
=> When the dots change their positions from the price, they show that the price direction may be about to change.
In (1) and (3), Parabolic is above the candlesticks => The market is falling => Parabolic Sar buy signals => Open a LOWER option.
In (2), Parabolic is below the candlesticks => The market is rising => Parabolic Sar buy signals => Open a HIGHER option.
How to set up Parabolic Sar indicator in IQ Option
To set up Parabolic Sar indicator: (1) Click the indicator box => (2) Trend tab => (3) Select Parabolic Sar.
Build IQ Option trading strategy with Parabolic Sar indicator
Strategy 1: Only use Parabolic Sar
If you use this trading technique, you only need to use the candlestick chart and Parabolic indicator. All you have to do is to focus on the Parabolic changing point.
HIGHER = Parabolic moves from above to below the candlesticks.
LOWER = Parabolic moves from below to above the candlesticks.
Strategy 2: Parabolic Sar indicator combines with SMA
Parabolic Sar can identify the correct trend in a short period of time. Besides, SMA is an effective long-term price prediction. This will give a perfect IQ Option trading strategy.
Requirements: Japanese 5-minute candlestick chart + Parabolic Sar indicator + SMA30 indicator. The expiration time is 15 minutes or more.
HIGHER = Morning Star + Parabolic reversal candlestick pattern is below the candle + Price crossed the SMA30 line from below.
Explanation: The reversal signal is Morning Star candlestick pattern + Parabolic is below the candlesticks => Uptrend. The entry point is right after when the candlestick that cuts SMA30.
LOWER = Evening Star reversal candlestick pattern + Parabolic is below the candlesticks + The price moves up and cuts SMA30.
Strategy 3: Parabolic Sar indicator works with candlestick patterns
In this way, Parabolic indicator will play a role in identifying the trend. The signal to trade will be candlestick patterns that continue the trend. If you don’t know all of the reversal candlestick patterns, please read here. All about reversal candlestick patterns in IQ Option.
Requirements: Japanese 5-minute candlestick chart + Parabolic Sar indicator. The expiration time is from 5 to 15 minutes.
HIGHER = Bullish Parabolic Sar indicator + bullish candlestick pattern (Tweezer Bottom, Three White Soldiers, Pin Bar, etc).
LOWER = Bearish Parabolic Sar indicator + bearish candlestick pattern (Three black crows, Pin Bar, etc).
You can practice the above trading strategies in IQ Option through a demo account. Good luck!