Best Indicator For Option Trading
I prefer not to trade options by applying indicators, I prefer to trade options by applying indicators to the same stock in the future segment and place entry in options.
Because if we apply indicators in options, you will not be able to get an accurate trade due to the time decay and options volatility.
Best Indicators For Applying In Futures And Place Entry In Options
Every Indicator will be the best indicator for option trading.
- Moving Average
- Bollinger Band
- Relative Strength Index (RSI)
- volume weighted average price (vwap)
How to Trade in stock Intraday with the help of Moving Average: best indicator for option trading
Trading by using the moving average will be accurate
Enter the long trade, when a cross-over of moving average takes place towards the bullish side.
And your stop loss should be the day low.
And your target would be according to your risk-reward ratio.
Enter the short trade when a cross-over of moving average takes place towards the bearish side.
And your stop loss should be the day high.
And your target would be according to your risk-reward ratio.
I suggest the 5 minute time frame for the intraday traders.
How to Trade in stock Intraday with the help of Bolinger Band: best indicator for option trading
Bolinger band will give the early signal, whether the market is moving towards the bullish side or bearish side.
If the Bolinger band is in a narrow position, that means contracting, and the signal is that market is in consolidation mode, so do not enter any trade while the market is in consolidation mode; wait for the scrip for picking movement.
The signal of whether the market is picking movement is, our indicator Bolinger band will expand, or it will show some expansion moment.
You can enter the trade after the expansion of the Bolinger band.
Remember Bolinger band will show whether the market is in bullish mode, consolidation mode, or bearish mode.
When the 5-minute candle has opened outside the Bolinger band, that trade will not be much effective.
Trade will be effective when the candle stays on the inner side of the Bollinger band.
I will trade when the candle is on the inner side of the Bollinger band.
I will avoid trading when the candle opens outside the Bollinger band.
How to Trade in stock Intraday with the help of Relative strength index (RSI): best indicator for option trading
The relative strength index will be helpful to take the trade or exit from the market.
RSI will confirm to take the trade or exit.
If the RSI level is above the value of 50, then it is the most probable of entering the buy trade.
If you had entered the trade above the RSI 50 level, In the middle of the market, if the value of the RSI drops below 50 (It will occur in rare cases), In that case, the trade may not perform most accurately.
Remember one thing; all indicators will show the direction of the market.
Volume Weighted Average Price Strategy (VWAP): best indicator for option trading.
It is an essential technical indicator for the day trader.
VWAP is a moving average that takes into account the volumes of shares been traded.
VWAP tells who is in control of price action, the bulls or the bears.
Above VWAP, buyers control the price, and below the VWAP, sellers are gaining control over the price action.
Professional traders buy and short the stock near the VWAP levels.
After the opening, the stock will trade heavily in the first 5 minutes.
In a gap-up stock, if there is a buying interest by the institutional traders, the scrip will trade above the VWAP and move high”s.
So it is an excellent opportunity to buy when price takes support at the VWAP.
If the price rejects VWAP and starts to move down, it means many traders are selling the stock for profits, so it is an excellent opportunity to sell the stock short when the price takes resistance at the VWAP.
If there were no interest in the stock from institutional buyers, the scrip would move in sideways near the VWAP level.
We should stay away from the stock in this case.
If stock finds support at VWAP, we can buy the stock.
If a stock faces resistance over VWAP, we can short sell the stock.
Stop-loss can be placed above and below the VWAP, and the target will be the following support and the next resistance.
We can confirm our buying position by analyzing the 15-minute chart.
Price should be above the VWAP in buying position.
Price should be below the VWAP if we are shorting the stock.
I recommend waiting for at least half an hour by taking any position if you are not confirmed with the direction.
Using a 15-minute chart will confirm the direction of the stock, but for entering the trade, use a 5-minute chart.
I prefer not to apply these indicators for options.
Apply these indicators in futures and place entry in the options, according to the moneyness of the options.
Importance Of Moneyness In Intraday Option Trading ? Best Indicator For Option Trading
There are three main types of options used to describe the moneyness of the option contract
In the money option
At the money option
Out of the money option
There is always a gap between the strike price of the option and the spot price of the options.
Based on these gaps, we can understand the moneyness of the options.
Suppose the stock’s spot price is 1000, which means it is currently trading in the market at 1000 rupees.
If the options strike price equals the stock’s current price, it is At the money call option.
The option has two components, intrinsic value, and time value.
The intrinsic value for at-the-money options is zero.
At the money call options is the time value component.
If the option strike price is greater than the stock’s current price, it is out of the money call option.
They are the cheapest options to buy.
If the options strike price is less than the current stock price, it is the money call option.
They are the most expensive in premium.
The moneyness of the put options is opposite to the call options.
In a call option, if the option price is less than the spot price, it is In the money option.
But in-put options, that strike will be out of the money; it is the opposite.
Incall option, the strike price is out of the money; in the put options, that strike price is In the money.
There are some more types of moneyness,
Deep in the money
Deep out of the money
Near the money option
The strikes that are near to the stock’s current price are near the money options.
The strikes that are very far from stocks’ current price are deep in the money and deep out of the money options.
For put options, these are quite the opposite.
Understanding the moneyness of the option is very important
If you don’t know money-ness, it’s all too easy to make mistakes in buying and selling opportunities.
These types of trades will be more practical and most probable.
If you are interested in taking these types of most probable trades, you may contact us to be a profitable and most probable trader.
These are the only samples for best indicator for option trading
The original program will be in our private groups and our course about best indicator for option trading
For applying these support and resistance predictions, the best platform is trading view
I am not a trainer; in the stock market, there are no trainers; all are learners.
There are many best indicator for option trading will personally recommend that will be available in our private channel.