Candlestick Trading Blog
When we talk about options trading signals we are not talking about text messages with “tips” from your stock broker. The options trading signals we are talking about are the stock prices of the equities underlying the stock options. Learning to read stock chart patterns will give traders a glimpse of the future stock price. It is the difference between the spot price of the stock and the strike price of the stock in options contracts that determines the value of the stock option. Using time honored technical analysis tools like Candlestick charting techniques and Candlestick pattern formations an options trader can accurately anticipate stock price movement and the options price changes that follow the stock. Savvy technical traders use options trading signals derived from stock price history to profit in the options markets.
Options prices change as stock prices change. Thus stock trading signals are options trading signals too. However, there are other options trading signals not found in Candlestick chart analysis. These two pieces of information are options trading volume and options open interest. Knowing trading volume helps the trader by giving a hint as to the strength of current market trends. Open interest can reinforce other information indicating a continued trend too, but it can also indicate market reversal. The point of learning how to do technical analysis to read options trading signals is to be able to anticipate equity price movement and trade options accordingly. Fundamental analysis of equities is important to give the trader a global picture of what a stock’s possibilities are. However, fundamental analysis belongs more in the world of long term investing and determining intrinsic stock value than in the fast paced world of day trading options contracts. Trading signals work because trading history repeats itself, in patterns. Basically, the front end of the pattern predicts the back end. For example, a “triangle” pattern may emerge in a stock price chart. The triangle is formed by two lines. One line connects the highs as a stock price cycles up and down. The other line connects the lows. If the highs are progressively lower and the lows are progressively higher the two lines start to converge giving the impression of a triangle. In this situation the stock market is coming to a consensus about the stock price. This pattern very commonly predicts stock price breakouts to the up side. A trader reading options trading signals such as this will often be buying calls on the stock in order to profit if, indeed, the stock price heads up. There are many options trading signals including those with modern names such as a triangle pattern and those with ancient names such as the Doji from Candlestick basics. Although these signals are never perfect they are used and have been used for centuries because their appropriate and skillful use reliably leads to trading profits. The “take home” message here is to ignore text message “tips” and learn the real thing, options trading signals.Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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