Crypto Trading Using Parabolic SAR
The Parabolic SAR system was developed more than 40 years ago by Wells Wilder. This indicator shows traders the maximum allowable distance that the price can pass without changing the direction of the trend. The abbreviation «Stop and Reverse» fully reflects the very essence of this indicator.
The indicator is included in the basic set for technical analysis. It’s widely used by traders in various trading systems. However, considering that the Parabolic SAR has been added to the Binomo platform quite recently, we will first consider how to use this tool. The ideal asset for technical analysis is CRYPTO IDX, the exchange rate of which is formed by averaging the cost of 4 leading digital coins (are cryptocurrencies a scam?).
The Parabolic SAR consists of dots or other pointers that mark the price level near each candle. Depending on the type of trend the indicator is located on the bottom (an uptrend) or from above (a downtrend) of the price bar. There are two configurable parameters: «Min. AF» – the step of the price move, by default – 0.02; «Max. AF», the standard value is 0.2.
For beginners, it’s not recommended to change these periods because they’re well-balanced and suitable for any intervals. Advanced traders can analyze the overall effectiveness of different periods of a parabolic system in order to find the optimal interval in certain market conditions, by estimating historical data from the chart.
The signal to buy the UP option
As soon as the rising candle touches the indicator’s points, they move from top to bottom. It signals that the price has passed the maximum allowable distance, and there has been a reversal of the main trend in the market. At this point, you should open a trading operation, focused on the growth of the asset.
The signal to buy the DOWN option
The signal for the upward trend reversal is the transition of the white points over the candle formations. You need to acquire the DOWN option at the moment when the current bar touches the newly-formed elements of the indicator from below. This moment is marked on the screenshot of the graph.
Money management and expiration terms
Indicators are tools for technical analysis, with which the trader builds forecasts for the movement of prices in the near future. Having the ability to conduct effective analysis doesn’t guarantee success on the exchange. A successful trader should be able to properly manage his money. For this purpose, separate disciplines were developed – risk management and money management.
Standard rules for option trading prohibit investing more funds in one transaction than 5%. For example, for a deposit of $100 this amount would be $5. Considering that Binomo (go to the site) allows the minimum deposit $10, and the option $1, the minimum amount for trading without violating the rules of risk management would be $20.
As for the expiration terms, the rules are very simple: the transaction should remain active for 3-5 price bars. The specific time limits depend on the interval of the graph. For example, for a 15-second timeframe, these are 1-minute turbo options. The crypto asset CRYPTO IDX would be an ideal choice to trade at such a small interval because conventional currency pairs due to the indistinct representation of individual price units don’t provide sufficient accuracy of trade signals (how to get money out of cryptocurrency?). However, everything depends on the current volatility of the market.
Real crypto trading using Parabolic SAR
The Parabolic SAR system itself is a self-sufficient indicator. You can successfully trade, using only this tool. Instead of talking too much, we’ll clearly demonstrate how it works on a practical example. In this case we’re going to use a real trading deposit since we’re 100% confident in the effectiveness of the strategies published on the site.
In the terminal we should select CRYPTO IDX with the interval of 15 seconds. Add the Parabolic SAR indicator, leaving the standard period parameters intact. As can be seen in the picture of the trading terminal, the ascending green candle touches the indicator’s points. This is the signal to reverse the trend, so we should buy the UP option. The minimum expiration period is 60 seconds. The actual duration of the transaction is a bit higher and accounts for 75 seconds or in other words 5 candles.
The predicted reversal of the trend comes true in the form of several rising candles in a row. Accordingly, the option is closed with 80% return on investment. With a $400 balance $10 was invested in the deal, which amounts to 2.5% of the balance and it doesn’t violate the rules of risk management.