The following binary options strategy is an easy and effective method which makes use of two popular technical indicators. This strategy was initially designed to be used along with currency pairs, as its origins lie in the Forex markets, but it can be used with other asset classes as well. The Parabolic SAR is used to derive entry signals which are then verified by MACD. The standard chart settings should be used for indicator, with a 30-minute time frame being studied.
The strategy itself is quite easy to understand. The first entry signal will be derived from the Parabolic SAR. As soon as this indicator offers up a Call or Put signal, you’ll want to be prepared to enter into a trade, selecting the indicated price direction. However, market entry should not be done until the MACD verifies what the PS has already shown. In order to verify a Call signal, the MACD must cross over the zero line, moving upward to provide validation. The opposite will be true for a Put position, with the MACD zero line being crossed from above, moving downward.
When trading along with a trend, this binary options strategy can also tell you when to exit the market. The signal to exit is provided when the MACD moves back below or above the zero line (as the case may be). Range-bound conditions will also provide a suitable time to exit the market. Such signals can provide the opportunity to hedge or straddle a trade under certain conditions, but err on the side of caution if you happen to be a novice trader who is not yet familiar with these methods.
This primary advantage of this strategy is the fact that it includes the use of not one, but two trusted indicators. Some traders do rely on these indicators solely, but strategies become more effective when multiple indicators are used. This strategy works well with currency pairs, but it could require a bit of tweaking when used with other assets. The 30-minute period is recommended, but other time-frames can also be selected. This method can be trusted simply because it includes all of the elements associated with a solid binary options strategy.
There are a few drawbacks to consider. One would be the fact that it will be tough to identify a long-term trend, although reversals may be spotted more easily. MACD is a lagging indicator, so in waiting for the zero line to be crossed, it is possible that you could miss optimal entry time. When trading along with a trend, a weakened MACD signal may still provide enough insight to result in a profitable trade. The inclusion of a third indicator would certainly help to validate the upcoming price action.
Both indicators have the power to provide easily recognizable signals. However, false signals are possible when an additional indicator is not used to verify a trend. Experienced traders should be able to easily use this method as-is, but may also want to modify it to meet specific needs. One option would be to use it along with shorter expiry times. Novice traders can use this binary options strategy as well, but are advised to not make any modifications, and should not opt for super-short expiry times.