Approved for Advanced Traders

Parabolic SAR Tool for Binary Options – Stop And Reverse

Last updated on October 30, 2013

Full Review of the Parabolic SAR Indicator for Binary Options

To be honest my friends, I found out long after I started to use this indicator that its name actually means Stop And Reverse because I always called it SAR or PSAR and never thought about what the abbreviation stands for. The indicator is not a custom one and can be found built in any Meta Trader 4 platform and several others. What is it? Well, I’m just going to say that if you use this indicator you will not be bored and the lack of trades will be the last thing on your minds because you will always find a trade. As soon as you exit a trade you can enter another one. Let’s see how this is accomplished.

How to Use the Stop And Reverse Indicator

This indicator comes in the form of small dots placed above or below price. If price is above the dots, the market is bullish and if price is below the dots, the market is…you guessed it: bearish.

Don’t blame me for the choice of color, my mouse landed there and I figured it’s as good as any. Besides, this is not about my charts but about the PSAR indicator. So, in my view this is an indicator suited for those guys who need quick trades, in and out of the market and like to ride it up and down. Although the PSAR was originally used for Forex and is regarded as a trend indicator, I think it can be used successfully for Binary Options. For me to explain that, I need you to take a look at this zoomed in picture:

These are cherry picked examples, I agree but if you look closely at your charts you will see that more often than not, when a dot appears, the next candle will go in the direction indicated by the Stop and Reverse indicator. This could be a pretty good way of using it as a signal to place a Call or a Put in the direction indicated by the dots. In Forex you need price to move a hefty amount of pips in your favor for you to make some money, but considering that in Binary options we only need one pip, this sounds like a good strategy. However, you shouldn’t mistake this indicator for a strategy because it is not and basing your trading only on its signals could be hazardous to your account.

Why does the Stop And Reverse Indicator Suck?

Unlike the examples in the picture above, a lot of times the indicator seems undecided and prints 2 or 3 dots on one side of price just to change its mind and print 2 or 3 dots on the other side. This can drive a trader crazy and visually it just looks confusing. This kind of behavior can signify a ranging market, low volatility and lack of direction but on second thought, as long as the next candle closes one pip above or below our strike price and in the direction indicated by the PSAR, we finish In The Money.

Why the Stop And Reverse indicator doesn’t Suck?

A trader who wants to trade often can find different uses for this indicator and complementary to the first trade signaled by the first dot, he or she can take additional trades as long as dots keep appearing on the same side of price. When combined with other trend recognition indicators, the Parabolic Stop and Reverse can be the foundation of a good strategy.

My Conclusion on the Stop And Reverse Indicator

I first used it for Forex trading and the results were not amazing to be honest, but the big advantage when using it for Binary Options trading is that one candle that closes in my predicted direction can bring me the whole payout for the Option. Using it on a 5 minute chart can generate a lot of signals and will satisfy the need of some traders to be always in the market. However, you should keep in mind that it is only an indicator and should not be used on its own but rather as part of a strategy.

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posted in Trading Tools Suck And Dont Suck • 3 Comments

3 Responses to “Parabolic SAR Tool for Binary Options – Stop And Reverse”

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koffee16
07/31/2013 13:44

Hi
Hi, i have found parabolic SAR very helpful in my binary options trades and forex. it is worth noting that parabolic SAR may not be very helpful when used on its own. i use 3 exponential moving averages, a channel, RSI and then the Parabolic SAR. to further increase my chances of success in any trading session, i also employ a money management strategy. All of these working together have given me a 90% success rate in any given trading day. here are my templates https://www.mediafire.com/?7neede79tuanw5a https://www.mediafire.com/?kpjizh5og12mpd2
Bogdan G
03/26/2013 08:51

Hi Andy
Hi Andy,
The PSAR does not repaint once the candle is closed. Almost all non-repainting indicators behave this way.
The indicator is best used in trending markets and it will indeed give a lot of bad signals in ranging ones, with lack of volatility. In fact, I dont know too many indis that work in ranging markets. It must be used with another indicator if you want to build a strategy based on it. I must not be used alone.
All the best
Andy Mueller
03/25/2013 17:28

Hi Bogdan
Hi Bogdan,
I’ve looked at PSAR before and just can’t make it work. So often I found that the SAR indicates an up or down price movement but the individual candles are all over the place, even ranging many times. The dots repaint, as well, making things just a litle more frustrating. Looking back at past charts with the PSAR attached, I found that more often than not, the next candle after the first dot does NOT go in that direction…am I missing something? I’ve heard a lot of favourable things about SAR, but can’t make it behave enough to be useful. Any ideas where I’m going wrong? Even when used with the RSI…aaahhh!!