Full Review of the SD Trading Strategy for Binary Options Trading
The strategy I am going to talk about today was designed to use on all major pairs. “The Majors” are the most commonly traded Binary Options currency pairs and include EUR/USD, GBP/USD, AUD/USD, USD/JPY and others, but I would say these are the most important. Because they are so frequently traded, the Majors are very active and volatile, offering many opportunities during a trading day and trends are developing more frequent than on other, more exotic pairs. The strategy was developed by a guy named Zeno and it’s available on forexstrategiesresources.com. I must warn you, it’s a pretty complex strategy so put your thinking caps on.
How to use the SD Strategy?
First of all, I don’t know what “SD” stands for (Super Duper maybe?) but I don’t think it’s too important anyway. After all, what matters is how much money it makes or if it makes. Ok, enough chit-chat, let’s get to business. The strategy uses more than one indicator but the most important seems to be the HAMA indicator. Next, we have a color changing Moving Average, a default MACD with Histogram and some special candles called SD Candles. Unfortunately, I couldn’t get the special candles to work properly on my charts so I just replaced them with Heikin Ashi candles which I find better anyway. The idea behind the strategy is to squeeze in as many confirmations of a trend as possible and then capitalize on them. After you installed all the indicators in your Meta Trader 4 platform (in your experts/indicators folder), your chart will look similar to the one below:
The settings for all custom indicators are default; I did not make any adjustments because the creator of the strategy doesn’t mention any special parameters. The same applies to the MACD: use 12, 26, 9, the usual, out of the box settings. In order for us to open a trade we need all indicators to agree so for a Put, we need HAMA to be Red and below the Moving Average, MACD to be below zero and Heikin Ashi candles to be bearish. The strategy also has a filter for ranging periods and the original author warns us not to take trades even if all the conditions are met but HAMA is not below the Moving Average (this is for a Put) because that might signal a range bound market. Here’s a summary of the conditions that must be fulfilled for a trade to be taken.
- HAMA must be Red
- HAMA must be below the Moving Average
- Moving Average must be Red
- Heikin Ashi candles must be bearish
- MACD is below zero
- HAMA must be Blue
- HAMA must be above the Moving Average
- Moving Average must be Blue
- Heikin Ashi candles must be bullish
- MACD is above zero
Chart Time Frame: 5 minutes
Expiry time: there is no recommended expiry time for this strategy since it wasn’t developed for Binary Options, but I would use one hour. Of course, your testing will determine the right one. You are going to test it before trading real money with it, right?
Why does the SD Trading System Suck?
First of all, just like any trend following strategy, it is prone to false signals during a ranging market… but nobody claims that this strategy is the Holy Grail of Binary Options. Of course bad trades are going to happen, but given the multitude of confirmations needed before entering a trade, the winners will probably outweigh the losers. Some traders, especially the ones that are new to the business may consider this strategy too complicated because it uses so many indicators. But let me tell you this: if you can match colors, you can trade this strategy; it’s really not hard at all. Make all your indicators Blue for bullish and Red for bearish. Buy a Put when all are Red, buy a Call when all are Blue… not that hard.
Why doesn’t the SD Trading System Suck?
This system was developed for trading the Majors which are known to be trending more than exotics and to have less whipsaws or sharp reversals. But take this statement with a pinch of salt because whipsaws happen on all currency pairs and in fact, on all assets. What I like about it is the fact that it doesn’t rely on just one or two indicators and this will give more accurate signals, although those signals will come less often.
Wrapping it up – The Trend is My Friend?
A good strategy is not obtained by cramming on your charts all the indicators you can get and expecting to make money, but I believe the SD Trading System is carefully balanced to get the best results possible. From what I have seen so far, the strategy is pretty reliable as long as it is traded as it should: don’t trade early, before all conditions are met, try to use a little discretion in order to identify a ranging market and stick to Majors. Of course, good binary options risk management and discipline plays a big role in the success of this strategy, but that is valid for trading in general. Finally, thanks to Zeno for sharing this one with us and Good Luck if you need it.