Candlestick Trading Blog

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The basics of option trading require the evaluation of a price direction. The most effective analytical features of price direction are built into candlestick signals. The basics of option trading should incorporate risk/reward analysis. This is made very simple when analyzing price trend reversals. The candlestick signals clearly demonstrate what investor sentiment is changing in a price trend. This information can be exploited in different manners.

The basics of option trading is to gain as much leverage as possible for taking advantage of a price move during a specific timeframe. Candlestick analysis can be used very effectively for analyzing both the price trend and the potential magnitude of a trend. This allows an investor to apply the correct stock option trading strategies. For the option trader seeking a profitable option trading education, having knowledge on a number of different option trading strategies produces two benefits. First, it allows the leverage of the upside potential of a trade. Second, if the right strategy is incorporated, it can greatly reduce the risk.

Candlestick analysis creates the opportunity to develop the highest profitable option trades. The evaluation of a price move in a specific timeframe makes for an easy option trade strategy. The magnitude of a price move during a specific timeframe may best be exploited by a vertical spread, buying call options outright, or selling puts. The analysis of the candlestick signals create a high probability trade direction. The evaluation of the premiums in the options of a stock will be the critical decision process.

Being able to analyze a high probability reversal spot during a price trend produces a number of uses for options. In the example of MTW, after the initial buy signal off the 200 day moving average, a Morning Star signal, witnessing the consolidation makes for an easy analysis. On the next buy signal, buying a 35 call and selling a 40 call against it reduces the amount of funds exposed to the trade. It expiration is within a few weeks away, a price move to the $40 area which would coincide with the 20 day moving average as first resistance, becomes the first likely target.



Being able to project the direction and the possible price target makes developing an option trade very easy. The candlestick signals demonstrate the investor sentiment. The use of other technical indicators provide logical targets. The basics of option trading should start with the strategies that are going to work most effectively for the projected price move. Keep the analysis simple. Keep the option trading strategy simple. This allows an investor to know when to establish a trade and when to liquidate a trade. Use candlestick analysis to develop the best option trading system.