How To Use Technical Analysis To Set Up Profitable Options Trades
By James Kupe
If your options trading system doesn’t consider some basic rules of technical analysis, you could be missing a lot of profitable options trades. A basic understanding of technical analysis will help you remove some of the guess work out of trading. That’s because you won’t be fighting the trend whenever you place your trades. The simple fact is that if the market is making higher tops and bottoms on a chart, you want to take advantage of that. As traders, we need every piece of help we can get, and riding a persistent trend is one of the biggest legs up we could ask for.
But if you are ignoring the trend, and your options trading system is giving you trades that fight the market, it makes it harder to make money consistently. Riding a trend can also give you places to enter additional positions as the price of the underlying goes up or down. That means you can compound your profits with lower risk than if you ignore what the market is doing. As the old timers always say – the trend is your friend, so you should be going with it.
So does a technical analysis based options trading system work for every trade? No, nothing works every time. Some trades are going to be losers because we can never know for sure what the market will do. But being able to read a chart allows you to see probabilities of what might happen, and then you have to make our trades based on this analysis. The good thing about options is that we can always roll our contracts up, down or out in time if we need to, so if we are on the wrong side of a trade, we can change the strategy to suit.
So what options do you have if you’d like to trade options, but you’re not confident in either your technical analysis or trading ability? A great way to cut down the learning curve and become a profitable options trader is to ‘borrow’ a successful trader’s system and use it for yourself. That means you could start trading profitably almost right away. For many traders, it makes sense to let somebody else spend the hundreds of hours and thousands of dollars it takes to learn options an options trading system that makes money. Then all they have to do is follow the trades as they are announced and get on board.
To learn more about creating a profitable options trading system that helps you to trade the big, profitable trends, read this options trading course. And this article on how to choose an options trading system should also make things a lot more clear for you