Options trading in India is getting popular day by day and its very important to know how to trade in options and make money by using best indicators for option that will help us to make good entries and exits for options trades.
Before moving any further lets discuss few points
What is an Indicator?
Quantitative instruments that traders use to predict market movement are known as market indicators. This aids them in determining their trade entry and exit points. Formulas and ratios make up market indicators.
Use of indicators in trading
While, as we all know that trading is pretty difficult to master, indicators make it a little easy for us to understand what is going on in the situation.
On basis of which we can take new entries and exits at more proper time than without indicators. Even though indicators are not the important or mandatory part of trading, it still helps us alot while trading.
What is option trading?
Investors can speculate on the future direction of the stock market as a whole or individual securities like bonds or stocks through options trading. You have the option—but not the obligation—to purchase or sell an underlying asset at a predetermined price by a predetermined date under options contracts.
3 best indicators for options trading
1: RSI
Rsi is one of the most popular and most used trading indicators of all time. What makes this indicator so good is that it indicates the relative strength of the trend that is going.
Whenever you see RSI below 30 or near to 30 and starts to go up slowly it may indicate that buyers are taking new entries.
Whenever you see RSI above 60-70 or near 60-70 and see it falling down it indicates sellers are taking new entries.
Best way to use?
According to us whenever you see any sort of divergence in RSI and price, you should stay ready for taking new entries. Divergence means opposition, for example price chart made double top with the second top being higher than first top, RSI also made double top but its first top is higher than second. This divergence indicates that the trend strength is weak and market may come doown a little bit and it can work and make you profits in options trading.
2: Pivot points
Pivot points is also one of the most popular and most used trading indicators, it indicates pivot or important levels for a price.
Pivot points usually show pivot level, support levels and resistance levels for a price on the basis of past day performance of the stock.
Whenever price reaches to any of the pivot levels it may show rejection or breakouts of the levels which can help you in trading.
Also you can use Fibonacci pivot points, they are also accurate.
Best way to use?
Whenever you see price taking any rejection touching any of the pivot lines and see price going in opposite direction after that, you can take an entry in the direction price is going.
Also whenever you see a candle break the pivot point and closes, you can take an entry depending on which side the candle closes.
You can get little bit idea from the photo above.
3: Moving averages
Moving averages are pretty accurate when it comes to indicators.
Widely used indicator in whole world, an old school indicator that works till today and if you master it, you can become a profitable trader.
Two most popular types of moving averages are simples moving avaerage and exponential moving averages, we personally use exponential moving averages.
Moving averages are average price of past specific days that you have selected, suppose you selected 20 ma, it means it will show average price of past 20 days and how it should be right now on basis of past days performance.
Best way to use?
You can use moving averages as support or resistance. Also it can be used in trading while breakouts and breakdowns.
Use 2 or more different period moving averages together and trade on their crossovers with each other(one of the most popular ways of trading
How best indicators help for option trading?
Just use indicators on the charts and decide which side you want or expect the market to go and buy the Call or Put of the stock or index’s option by selecting a proper strike price.
We suggest that you should not apply indicators in options chart because options prices are not working as per technicals they change on basis of decays and other stuff. So just use indicators in stock or index and on that basis you can trade in options.
Also check few more indicators that you did not know about yet
