Technical Analysis Indicators Were The Key To My Option Trading Success
When I first learned about technical analysis indicators I couldnt wrap my head around
all the terms such as; overbought, oversold, leading, lagging, etc., etc. But the more I studied them the more I began to see how effective they were.
Technical analysis indicators allow me to predict a stocks price movement with a fair amount of accuracy. As an options trader I also use them to produce buy and sell signals.
Nothing is guaranteed though. As I stated above, the indicators allow me to predict a stocks price movement with a fair amount of accuracy. Its like predicting the weather. The indicators dont guarantee what is going to happen; they merely guide me in preparing for what is likely to happen.
Pretend that the stocks price movement is the weather and the technical indicator is a weather satellite. A weather satellite (technical indicator) can warn you that a storm is coming (prices are going to fall) so that you can prepare for it accordingly (protect profits or enter a new trade).
So What are Technical Analysis Indicators?
Technical analysis indicators are mathematical representations of market patterns and behavior. They are formed by plugging information, such as price and volume, into a mathematical formula that produces a data point. Several data points are collected over a period of time and are usually connected by a thin line. These are generally the squiggly lines you
Two types of technical analysis indicators I use are leading and lagging indicators.
A leading indicator generally precedes price movement and I use it to generate buy and sell signals.
The lagging indicator is my confirmation tool. After prices have been trending for some time, the lagging indicator will produce a signal that the trend is changing. The signal happens after the fact. It essentially solidifies any signal that the leading indicator gives me.
There are also two conditions to become familiar with: overbought and oversold.
Overbought is a condition that occurs when there has been a lot of buying and the price of the stock is considered too high and susceptible to a decline.
Oversold is a condition that occurs when there has been a lot of selling and the price of the stock is considered too low and a rally in price is anticipated.
Now that we got the technical details out of the way, lets get into the specifics.
As I studied technical analysis indicators, I started noticing a few correlations. I noticed that I produced better trade results when my leading and lagging indicator both gave me the same buy or sell signal.
After realizing this I started using the leading indicator to produce my buy and sell signals, but would wait for confirmation from the lagging indicator. If the lagging indicator produces the same overbought or oversold signal then Ill usually enter the trade.
For example, I often use Williams %R to generate buy signals, and MACD to confirm the buy signal.
The combination of a leading and lagging indicator together has been extremely powerful for me. Its a very straight forward and simple way to trade, but most of all it works. For some reason, new traders often struggle with simplicity.
Here is the pattern Ive noticed. They search the internet, read every blog, and buy products from all the gurus in an attempt to find the best technical analysis indicators to use. If the system is too easy, like mine, they move on because simple is boring.
Theyd rather have 12 indicators on a chart only to find out that not only do the indicators produce conflicting signals, but now they are more confused than they were before.
Please dont be misguided. More is not better. You dont want two or more indicators on a chart that are essentially the same. For example, dont have two indicators that both measure volume.
Just remember that technical analysis indicators are nothing more than tools used in technical analysis. Theyve been a great tool for me, and I would not have been able to produce my 100%+ trades without them.
If youre looking for an easy way to learn stock options trading, we will be launching our new 360 Options site soon! This is an excellent article by Travis W. which talks, on a high level, about technical analysis indicators. All investors should have a basic level of technical understanding to help them make their investment decisions. A combination of technical knowledge and fundamental knowledge on your stocks will help you find good entry and exit points and ultimately profit more.
Happy Investing,
The 360 Investing Guys
by: 360InvestingGuys
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Technical Analysis Indicators Were The Key To My Option Trading Success Anaheim