The use of short-term periods can significantly save time without losing the accuracy of the signals. This is one of the main advantages of the online trading platform from Binomo. The current article will be devoted to a review of the strategy based on Parabolic SAR and ADX. The tools complement each other perfectly, increasing the efficiency of the output signals by approximately 30% than when using separate indicators.
A brief overview of the strategy
The Parabolic SAR trend indicator is always in a rising or falling phase. Therefore, it reflects the real situation on the market only in part. About 70% of the time, there is a flat period on the chart - horizontal movement with minimal amplitude of oscillations. This is an unfavorable period for trading.
This strategy uses Parabolic SAR with reduced sensitivity, which halves the frequency of its responses. Secondary filtering of its signals is carried out by ADX. This is a trend oscillator that allows you to determine the strength of upward and downward fluctuations separately and their combined trend power. The synchronous formation of reversal signals for these instruments in most cases indicates the beginning of a global trend reversal in the scale of the time frame used.
Trading strategy rules
Asset and time. The system uses a 15-second chart interval; therefore, in addition to the CRYPTO IDX created for short-term trading, you can also use high volatility currency pairs. When choosing currencies, you should follow the exchange session schedule. For example, it is best to trade EUR/USD during the active period of the American and European sessions. The most important thing is that the asset ensures the formation of full-fledged candlestick elements.
Money management. For trading fixed “Higher/Lower” contracts, the basic rule of capital management is to limit the size of investment in one trade. The recommended value is less than 0,5-1% of the account balance, the upper limit is no more than 4-5%. Going beyond this framework is extremely risky.
The expiration term. This strategy is scalable. The expiration term for the contract is tied to the time frame. The default is a 15-second interval and 60-second trades, i.e. a 1:4 ratio. It can be scaled to a 30-second chart and 2-minute trades, or to a 1-minute time frame and expiration of 4-5 minutes. An increase in the period will allow you to slightly improve the accuracy of the signals, but it will significantly reduce the number of them.
Preparing the platform for analysis
Standard technical analysis tools presented in the catalog are suitable for trading. терминала Binomial. Preparation takes about a minute. Consider the process step by step.
- The chart. A 15-second time frame in candlestick mode is used. Any asset with high volatility. A universal solution is CRYPTO IDX, Binomo's cryptocurrency index.
- Indicators. Add Parabolic SAR, reducing the value of the Minimum AF parameter to 0,01. Also add ADX, keeping its default settings.
- Contracts. . “Higher/Lower” trades are used with an expiration equal to 4 candles on the chart. When choosing the period, you need to take the time frame into consideration.
The key moment when trading on the system is the formation of synchronous reversal signals with a slight deviation of no more than 3 candles.
Indicator trading signals:
- On an increase - the price begins to rise on the chart, as a result of which the points of the Parabolic system move to a position under the candles. Confirmation is the beginning of ADX growth, when the green line (+DI) intersects with the red (-DI) and rises above it.
- On a decrease - formed against the background of a downward trend in price movement. The SAR points rise to a position above the candles, and the red ADX curve (-DI) rises above the rest of its lines.
For convenience, in the ADX settings you can activate the histogram display function, which is similar to MACD and Awesome Oscillator. The position of its columns and their color reflects the distance between the +DI and -DI lines, as well as their position relative to each other.
Practical advice for traders
The potential permeability of an emerging reversal signal can be assessed by two criteria. First, you should carefully consider the situation on the chart. It is necessary to enter the market at the moment a long steady trend is reversing. If they are short-term amplitude fluctuations up and down and the quotes remain at the same level (flat), then it's best to wait some time. The duration of the trend before the reversal of the SAR points should be at least 15-20 candles, optimally more than 30. For quick visual assessment, you can focus on the grid cells of the chart.
The second important nuance is the strength of the trend. It is easy to determine using the main ADX index (white line). If its position is below 15% and it is directed downwards, then it is recommended to refrain from entering the market. It is optimal if it is located at a position of about 20-25 and directed upwards. However, due to a temporary weakening of volatility during a trend reversal, it is permissible if the index weakens its position slightly before forming the signal. This can be clearly seen in the examples that we reviewed in the pictures above.