ForzaForex.it presents a high winrate scalping strategy on 1 Minute Candles and 5/6 Minute Expiry based on the Parabolic Sar signals filtered by the divergence, with positions open only in the direction of the trend.
We try it on GC Option, on the Webtrader platform from which we obtain the images, but you can also test it on your favorite broker, with the same indicators.
PARABOLIC SAR
This is a “Stop and Reverse” indicator, that is, it identifies the momentary trend change by giving an entry signal through the appearance of dots.
In the figure we see it on EUR/USD (OP stands for “OPtions”, binary options). Time frame with 1 minute candles.
We install the indicator. Let’s go to the indicator symbol and choose SAR:
The operation is very simple: if the points are below the candles it means that we are in a bullish trend, vice versa if the points are above the candles we are in a bearish trend.
Furthermore, the distance between the points and the candles indicates the strength of the trend. The greater the distance, the stronger the trend, and vice versa.
We see in the figure that the greater the distance indicated by the red lines, the greater the bearish trend. As the distance decreases, the trend weakens until the distance reaches zero and a reversal is expected.
Strategy for beginners
As you can already imagine, the novice trader can think of using the appearance of the point on the side against the trend as an opening signal, example:
The problem with this system is that the SAR only works well in trending markets, while poorly during lateral trends, which unfortunately occupy about 70% of the time.
During the flat market SAR provides many false signals. To solve this problem we will use two methods:
- Current Trend
- Divergence
Current Trend
To have a greater chance of success it is best to open positions only in the direction of the trend.
To know what the direction of the current trend is, just view the color of the last candle of a higher time frame.
Example. trading on M1 you can check the color of the last candle on M 15.
GC Option also has a convenient function that allows, by clicking on the button at the top right, to open a second reference window, in which it is possible to insert the M15 time frame that we need for trend evaluation (default is M15) :
As seen in this example, the left panel shows a green candle in the M15 time frame, indicating a bullish trend.
In this case we will only prepare for call trades.
However, even this time frame filter may sometimes not be sufficient to avoid “out of the money” transactions.
“Divergence” comes to our aid.
Divergence
One strategy you can use with the Parabolic SAR is called divergence.
When the price moves in the opposite direction to the direction of the SAR indicator, it is called divergence.
Let’s see an example.
In general, when the candles follow a bullish trend the SAR will also have the same bullish trend, vice versa when the candles follow a bearish trend the SAR will also follow the same bearish trend:
However, sometimes these directions do not match. We then speak of divergence, that is, the directions between price and SAR are the opposite of each other.
In this case it happens that the opposite trend continues in the same direction, allowing us to open a position in that direction.
Recognize and track divergences.
First we need to identify a divergence.
Let’s examine the part of SAR that starts from the first dot that marked the change in trend.
We trace a trendline that starts from the opening of the first candle corresponding to the first dot and reaches the price of the candle being formed:
As can be seen, the trend is clearly divergent. In this case it is a bullish divergence.
It is therefore possible to open an operation in a bullish direction:
Here is another example (bearish divergence):
Which then continues in the expected direction:
As for the broker being tested in this strategy, GC Option, we have made a new 2023 review
There is also a 40% bonus .
