Best Indicator for Option Trading

In this article we will learn about the best indicators for options trading. Through this article you will get to know about “Best Indicator for Option Trading” in easy language. Options trading is high risk high reward trading. But if option trading is learned well, then there is a lot of profit in it. If you are looking for an indicator for options trading that can help you in trading, then you have come to the right place. So let us know in detail about option trading.

Best Indicator for Option Trading

Before doing option trading, you should know what types of risks there in option trading are. That means in option trading, an option is bought, and option is also sold. There is a lot of difference between whether you are an option buyer or an option seller. The option buyer always needs momentum, then he earns money, and the option seller gets the separate benefit of time decay. We will tell you about some such indicators which are beneficial for both option buyer and seller. So, let's know about these indicators.

1.Bollinger Bands

This is the only indicator that tells you the true direction of the trend. As soon as you look at this indicator, you will know what trend is going on in any stock. You will understand very well if the stock will be uptrend, downtrend or sideways. First, look at the picture given below and understand that the Bollinger bands indicator is made up of three things.

Upper band, Lower band, and 20-day simple moving average. If the price of a stock is below 20 SMA then it means either the trend is down or sideways. And if the price of a stock is moving above 20 SMA then it means either uptrend or sideways. Apart from this, if the price of a stock is going up by cutting the upper band, then the stock is considered quite bullish and if it is going down by cutting the lower band then the stock is considered quite bearish.

In option trading, you can use this indicator to trade in the direction of the trend. The 20 SMA used in it acts as support or resistance and many traders do their trading using it. You can also create your own trading strategy by practicing this indicator. You do not have to rely solely on indicators for trading. Because indicators focus only on price and volatility. Apart from this, there are some things which the indicators cannot show you.

2.Super trend Indicator

This is an indicator that only tells the trend. When a stock is in uptrend its color turns green and when a stock is in downtrend its color turns red. Average true range and factor are used inside this indicator. Their normal values ​​are 10 and 3. Its range can be increased or decreased.

In this, the more you increase the value of the factor, the more it will move away from the price and will give you the same late signal. This indicator is also used to increase profit i.e. for trailing. You can see the super trend clearly from the picture given below.

Super trend’s best values ​​are 18 and 2.5. If you use super trend of this value, you will get some relief from fake signals and will also help you in holding the trade for a long time. If you use this indicator with trendline, it will give you better results. You cannot trade based only on super trend. Because the indicator follows the price.

With this you will have to create a mixture of trendline, price action and candlestick pattern which can increase your accuracy. From the example below you can understand how we used other things with this indicator and got better results.

  

You can see in the picture how we used the trendline and super trend also gave us green signal, so we got the opportunity to buy from there and saw a very good trend. If you use other things along with this indicator, you will understand the trend better and you will be able to take better trading decisions.

3.Moving Average

Moving average trading is the most used. It works well as support and resistance. Many traders use it to take entry in a stock and trailing stop loss in the stock. There are two types of moving averages. One is SMA and one is EMA. There is not much difference between the two, but EMA gives slightly more importance to the current price.

The most used moving average values ​​are 20, 50, 100, and 200. Some traders trade crossovers by applying moving averages of different values ​​to the chart. In this, the 20-period moving average represents the short term trend and the 200 period moving average represents the long term trend. As I mentioned earlier, moving averages act as good support and resistance.

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EMA 200 EXAMPLE

In the above example you can see how EMA 200 has acted as resistance and support. Whenever the price comes near the moving average, it will act as support or resistance. When you use EMA 200 in any stock, then when the price comes near it, if you see any candlestick pattern there then you can get a trade opportunity there. If you use moving averages with candlestick patterns, you will get better results.

Conclusion

In this article we told you about some better indicators for option trading. One thing you have to understand is that success in trading is never achieved overnight. You should use the indicator only for extra confirmation. Trading should not be done by relying only on this. Some people think that by finding such an indicator they can become rich overnight, but it is absolutely wrong to think like this.

You can be successful in the stock market only with practice. The more time you give to the market, the more perfect you will become. There is no secret or any secret indicator using which you can start earning money quickly.

FAQ

What is Super trend indicator?

The Super trend Indicator is a popular technical analysis tool designed to assist traders in identifying market trends. The indicator combines the average true range (ATR) with a multiplier to calculate its value.

What does moving average tell you?  

A moving average (MA) is a stock indicator commonly used in technical analysis, used to help smooth out price data by creating a constantly updated average price. A rising moving average indicates that the security is in an uptrend, while a declining moving average indicates a downtrend.

How do you use Bollinger Bands?

A common approach when using Bollinger Bands® is to identify overbought or oversold market conditions. When the price of the asset breaks below the lower band of the Bollinger Bands®, prices have perhaps fallen too much and are due to bounce.

What do Bollinger Bands tell you?

Bollinger Bands® help you identify sharp, short-term price movements and potential entry and exit points. Flexible and visually intuitive to many traders, Bollinger Bands® can be a helpful technical analysis tool.

How accurate is Bollinger Bands?

Interestingly, Bollinger Bands can capture about 90% of the price action in a given asset or cryptocurrency. When the asset's price moves above or below a set Bollinger band, this means that trading opportunities are being presented.