The Parabolic SAR and CCI (Commodity Channel index) binary options trading strategy is a simple yet effect trading strategy for binary options. In this article, we’ll discuss this binary options trading strategy and how you could make profits within a short span of time. Ideally, you would require a binary options broker that offers 30 minute, 45 minute or even 60 minute binary options expiry. 24Option is a recommended broker and you can read the 24Option review to learn more.
The PSAR and CCI Binary options trading strategy works on the basis of spotting potential price reversals during a specified period of time. This strategy also takes into account the binary options contract expiry times to maximize our trading potential.
In order to fully understand this trading strategy, we need to first understand the indicators that are being used in this binary options trading strategy and also the time frames. Parabolic SAR simply allows us to identify potential price points on the chart. When PSAR is plotted below the price, it denotes a rising trend and when its plotted above the price it signifies a downtrend.
CCI or Commodity channel index is basically an oscillator which shows overbought and oversold conditions. It is marked with 100, 0 and -100 levels. A cut of the CCI from -100 to 0 shows an uptrend and when the CCI cuts from above to 100 and 0 shows a falling trend.
Combining PSAR and CCI, our trading system will be able to identify key price points on the chart and thus enable us to make more informed binary options trading decisions.
You would be requiring an MT4 trading account (demo or real) in order to make use of the MT4 indicators and charts.
Assuming that you know how to add the PSAR and CCI indicators, this strategy will focus on the 15 minute time frame charts. For contract expiry, we typically look for 30 – 45 minute expiry times.
An important aspect of this binary options trading strategy is to make sure that trading is done when there are no external fundamental factors affecting the prices. Thus, trading during the early London session or late US session during days when the economic calendar is not packed with news releases is ideal. As such, trading during the 2nd or 3rd week of the month improves our chances.
Parabolic SAR and CCI Trading Strategy
Now that we have our 15 minute charts ready with both the indicators, let’s take a look at potential BUY/SELL signals, or PUT/CALL options.
To put it shortly, PSAR helps us identify potential Stop and Reverse price points. Commodity channel index on the other hand plots overbought and oversold conditions.
When to BUY or make a PUT option
When you observe the charts closely, you can notice when price action tends to get closer to the Parabolic SAR price points. This prepares us for a potential BUY or PUT signal. The Parabolic SAR needs to have at least 2 dots plotted on the chart with price getting closer to the levels.
We also look at CCI where the ideal scenario being that the CCI signal line should be below the -100 level.
Because Parabolic SAR is lagging (which means that the Stop and Reverse level is plotted ONLY after the upper or lower PSAR is breached), we look at the overall PSAR points being drawn.
When price draws closer to the PSAR we then expect to see the CCI cutting the -100 line. We then place a PUT option (meaning that price will go higher than the current market price) with either 30 minutes or 45 minutes as the expiry time (2 or 3 candles on the 15 minute chart). The most ideal binary options for this strategy would be the High/Low or PUT/CALL binary options.
When to SELL or make a CALL option
Look for PSAR points plotted below the candles. If price tends to draw closer to the PSAR then look to CCI for confirmation. The CCI signal line should be above 100 level and sloping downwards. When the PSAR point below the candle is breached confirm the same with CCI and make a CALL option with 2 – 3 candles as expiry (in other words, 30 or 45 minutes as expiry time).
Eliminating False trading signals
Parabolic SAR is a lagging indicator. In other words, a PSAR in the opposite direction is formed only when price breaches the previous PSAR level. As such the trading system should be taken into perspective as a whole.
- How many past PSAR points been plotted on the chart
- How far away is the price from the PSAR points
- What is the CCI telling you
In order to make this trading system more robust, having the daily pivot points plotted is a good idea as it tells us where price is in relation to the daily pivot points. For example, in the chart below in the highlighted area, we see the CCI cutting the -100 level and the Parabolic SAR switched to below the candle. However, if this trade was delayed (waiting after one or two candles is formed) it would have been a disaster as price bounced off the daily pivot line and fell back again.
The combination of PSAR with CCI is a simple yet effective trading strategy for 30 or 45 minute binary options expiry. As mentioned, you can get the best results when there is good volatility but not much because prices can tend to reverse and fall back to the previous levels.