Six Essential Indicators for Options Trading Online

There are many facets to becoming a successful financial trader, from developing the correct trading mindset to a thorough understanding of the markets in which you are operating.

When it comes to options trading online, arguably the most important piece of knowledge is understanding which financial indicators you should be following and exactly what they mean.

indicators for options trading online

For indicators to be useful you need to know what they mean. (Image courtesy sxc.hu)

By its nature, options trading is one of the higher risk forms of financial investment and the key to making excellent profits is to be well informed. If you enter online trading activities being ignorant of industry jargon and executing your trades without consideration of available data then you are courting disaster.

The options trading indicators (or signals as they are often known) are critical to your success and here we summarize the most important of these. They are the essential ingredients which play a vital role in all successful trading maneuvers.

Options Trading Moving Averages

Moving Averages (or MA as it is known) is one of the most widely used indicators and represents the average price of a security over time. MA provide trend lines which immediately show the direction of a stock and is extremely useful for those traders taking long term views. As useful as the MA indicator is, it cannot be used in isolation and needs to be included with other signals for the best results.

Options Trading Bollinger Bands

Bollinger Bands is a relatively modern analysis tool invented by the man whose name it carries. The Bands are lines drawn above and below the MA which given an indication of whether the price is high or low. In turn, this shows the relative level of volatility in the market.

Options Trading Net Trader Positions

The Net Trader Positions is published regularly by the Commodity Futures Trading Commission (CFTC) and provides a view of commercial trading which occurs outside the CTFC’s reporting level. This signal provides insight into market liquidity and is a great predictor of forthcoming major trends.

Options Trading Stochastics

The Stochastics Oscillator was developed by George Lane in the 1950s and is a momentum indicator showing the price of a security relative to its historical price. Stochastics can predict the turning price as during an upward trend, prices are more likely to close within their higher point, and conversely. This indicator is used extensively when trading options online.

Options Trading Relative Strength Index

The Relative Strength Index (otherwise known as RSI) looks at the difference between the price of a security on up days and the price of the same security on down days. As a result, it gives a measure of the price strength of the security compared to the market over a given period of time.

Options Trading Average Directional Movement

The Average Directional Movement (also termed ADX) is an indicator used for calculating the strength of a trend. As it is a lagging indicator requiring the trend to be already underway for it to work, it does not show trend direction. The power of ADX lies in its ability to provide warning of contrary trades which could endanger your trading position.

These six essential indicators give an important insight into what is required for successful options trading online.

For much more information on these signals and others which are needed for your trading activities, please have a look at these recommended references from Amazon.

To your trading success.

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3 Responses to “Six Essential Indicators for Options Trading Online”

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