Parabolic and MACD Strategy – Can Two Indicators Build a Profitable Strategy?
Full Review of the Parabolic and MACD Trading System for Binary Options
Lately I see more and more complicated strategies, with a lot of indicators and confusing rules for entering the market. I can’t trade something like: Enter Call if X > Y and A close to B but not quite, then check to see if X < C where C is the difference between A and Y… or something similar and I bet most of you don’t like that either. That’s one of the reasons for today’s very simple Parabolic and MACD strategy. Don’t blink because it’s so simple that explanation will be over in a couple of seconds.
How to use the Parabolic and MACD Trading System?
As you might have guessed, the strategy uses just two indicators, nothing fancy and both available by default in your Mata Trader 4 platform so you don’t have to bother downloading and installing any new indicators. MACD has many uses and offers more than one signal but for this strategy we will use the MACD Histogram and its movement above and below the Zero level. More on that later. The other indicator is the Parabolic SAR (Stop And Reverse) and it’s been lately covered in a separate article dedicated to this tool. More on PSAR Indicator. But if you don’t feel like reading that entire article, here is how to use the indicator: a bullish signal appears when the dots are below price and a bearish signal appears when the dots are above price. Easy peasy J. Both indicators use the default settings and here’s how your chart will look like:
The signal to trade comes when the Parabolic SAR and the MACD agree (marked by Yellow and Red arrows on the chart) and indicate the same direction. We don’t use the MACD lines crossover but we focus on the histogram and it’s relation to the zero level: above is bullish and below is bearish so for a Put, we need the MACD histogram to cross below the zero level and the SAR dots to be above price. The author doesn’t say anything about which one must come first so it is probably not very important. However, it is mandatory that both conditions are met at the time of the entry. Here’s a summary of both Call and Put entries:
Call Entry:
- Parabolic SAR dots appear below price
- MACD histogram crosses above zero level
Put Entry:
- Parabolic SAR dots appear above price
- MACD histogram crosses below zero level.
The author suggests also exit points but we cannot use that in Binary Options trading so it is of no importance to us. The time frame used for the strategy is 30 minutes, one hour, four hour and daily but since it’s a Forex strategy, he gives us no clues about expiry times. However, I would recommend an expiry at least 3 times longer than the time frame used for entry. Of course you need to test this recommendation and see for yourselves if it’s profitable and if you want to use it on a live account.
Why does the Parabolic and MACD Trading System Suck?
When the market is full of noise, the swings are not so easy to see and the MACD will go often above and below zero and the Parabolic SAR dots will quickly switch from one side of price to the other. Of course this will generate a lot of Out of the Money trades so the strategy will be less reliable in such times, Also, if you trade Puts in an uptrend and Calls in a down trend, your account will most likely get burned even if you follow the strategy rules.
Why doesn’t the Parabolic and MACD Trading System Suck?
The signals generated by this strategy are very easy to see and I must admit, they are pretty accurate if the trader is not a complete noob and can read the market context a little. Being able to identify correctly the state of the market goes a long way and has a lot of benefits… just like common sense. If price shoots up, don’t try to win with Puts; instead, just wait for a Call entry and things will go a lot smoother.
Wrapping it up – Can Two Indicators Build a Profitable Strategy?
The answer is “Yes, they can”, but trader discretion must play a big role in this strategy and proper discretion comes from a lot of learning and screen time. The signals of the strategy have to be filtered because if you will trade all of them you will be less successful than if you only take the ones in line with the prevailing trend. That being said, I wouldn’t use this strategy in its current form and the first thing I would do is to add a trend identifying indicator or method. Overall, it still needs some work but thanks to the author of this strategy and if you want to check out the original source, you can do it here.