Best Option Trading System Begins with Candlestick Analysis

What is the best option trading system? A system that can utilize price direction with a high degree of predictability. Most investors want to implement the best option trading system that they have learned. They want to apply their best option trading system with less emphasis on trying to find the best price movement of an underlying stock. The best option trading system is knowing a multiple number of options strategies. The candlestick signals provide the information needed for projecting the best price moves. Knowing a number of options strategies allows the investor to exploit the price move.

Options provide many benefits versus buying or shorting the stock outright. Because candlestick analysis incorporates the use of probabilities in its evaluation, that same thought process can be extrapolated into option strategies. The best option trading system is one that involves taking advantage of the upside potential while minimizing an investor’s risk exposure. These strategies can be applied with some simple common-sense evaluations. How much time is left until expiration? What has been the previous volatility of the underlying stock? What is the likely target for this price move based upon the potential pattern formation, resistance levels, and strength left in the stochastics? Analyzing this information with the evaluation of what the candlestick signals are revealing allows an investor to put the proper option trade in place.

Understanding  how to use candlestick signals and options strategies correctly expands the profit opportunities that most investors do not take advantage of. For example, a stock price that appears as if it could move from the $40 area to the $45 area in a specific time frame may have call options that do not provide a significant profit for the risk exposure. In this case, selling the puts may make much more sense. Alternatively, buying the 40 calls and selling the 45 calls might produce the optimal option trade. A spread reduces the amount of money exposed to the trade. It also increases the percent of profit that can be made in the trade. It does reduce the potential upside that could be made if the price movement is much greater than analyzed for the time remaining. However, the best option trading system should incorporate the same probability projection as the underlying stock position. What are the probabilities of the price moving to a certain level based upon the candlestick signals and the confirming indicators? That is the basis that the option trade should be made. Worrying about price movement opportunities that ‘could’ occur in a price move is where most option traders reduce their percentage returns dramatically. Utilize the signals to project the correct direction. Utilize the confirming indicators to decide which option trading strategy is the best for the analysis of that trade.

Option trading is just a spoke of the investment wheel. Learn how to use numerous options strategies successfully. This knowledge, combined with  candlestick analysis, becomes a powerful tool for extracting profits out of the markets.  Review Options Trading with Candlesticks in our Free Resources Category. Bullish – Bearish – Neutral – Breakout Option Trading Strategies.

 Market Direction

The large Hammer/Doji formation that appeared in all the indexes on Thursday was a ‘possible’ reversal signal. The Dow formed the signal as the prices came down through the 200 day moving average and then came back up and closed above it. However, the Hammer/Doji signal occurred in the NASDAQ, the S&P 500, and the Russell 2000. But in those indexes, stochastics had not yet gotten to the oversold condition.

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