Entering the options trading market with little knowledge can result in huge losses. Traders are required to know how to trade successfully and take advantage of the flexibility provided by the options trading vehicle. A successful options trading plan involves four elements: prediction, timing indicators, technical analysis and controlling risk.
Use previous market trends and price data to predict the future of your options position. This is called technical analysis.
There are two timing indicators: Relative Strength Index (RSI) and Stochastic Oscillator. RSI will help you predict right time to sell or buy options while stochastic oscillator will tell you whether the option you’re buying is affordable or expensive.
Patterns are useful to determine the change in the stock price. Price movements are essential to know the changing expectations in the options trading market.
Use ‘sell stops’ and ‘buy stops’ depending on the market volatility and maximize your profit while minimizing risks.
Traders have far more choices in options trading than they might think. However, utilizing the best strategy and above mentioned elements can only ensure success in both long-term and short-term options trading.
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