Stock options trading using technical analysis and market indicators
To the inexperienced eye, a stock chart may look like an unpredictable line with a jumble of colors and marks. But these traders are watching charts to pick up on the subtlest of indicators of where share prices could be headed next. Identifying trends over different time frames are useful because it can help weed out all the noise of daily volatility. Trend traders use a number of different indicators to help them figure out what kind of trend a stock is in.
The day moving average and day moving average are the two most commonly cited. Volume, of course, is the measure of the total number of shares that trade in a given time period.
Where volume really comes in handy is for confirmation. Many traders use volume to confirm the conclusions from another type of indicator, such as a trend. However, these moves often occur on relatively low volume and can be short-lived.
Momentum indicators are like speedometers for traders; they show how fast a stock is moving in a given direction. These indicators are typically displayed as oscillators, which fluctuate above and below a baseline level to indicate how much positive buying or negative selling momentum a stock is experiencing.
How to run a Stock Trend Analysis. On this page you will learn a simple process of market trend analysis and stock trend analysis. The main intention is to provide set ups for credit spread trades, but the technique applies to any form of stock, option or forex trading. Stock market technical analysis can get very complex, leading to errors or analysis paralysis.
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Still baffled by all this information? If you need to take a step back and get the big picture about the stock markets and trading, here is an excellent site: Stock Investing for Beginners. Market Trend Analysis Find the direction of the general market Your stock would have to be exceptional to be able to buck the momentum of the market! You will need to look at these four indicators: The balance of moving averages e. This simply means that over the last ten days, the stock has been trading higher than it has been trading on average over the last 30 days, and so is generally heading up.
The further apart the trend lines are, the stronger the momentum. This simply means that over the last ten days, the stock has been trading lower than it has been trading on average over the last 30 days, and so is generally heading down.
If the ADX is below 20, the momentum is starting to weaken. Relative Strength Index RSI Shows when a reversal is imminent If the RSI is above 70 , the market is generally thought to be overbought , and an upward trend is likely to turn downward soon.
Be careful about entering a trade. If the RSI is below 30 , the market is generally thought to be oversold , and a downward trend is likely to turn upward soon. Be careful about entering trade. Articles for Newbies What is Option Trading?
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