Winning options trades require two things: good timing and solid price action. Price action is the easier of the two to analyze. Timing is much harder, which is why traders so often get it wrong. However, a few technical tools are very useful in finding that sweet spot where good timing and price levels come together. They are price action and stochastics.
Price action and stochastics help you make winning trades
Let’s start with price action, the king of all indicators. You can evaluate a chart simply by paying attention to price. Without solid price action (moving up or down – doesn’t matter), you will never have a winning trade.
When price is moving up, it’s bullish. When price is moving down or not moving at all, it’s bearish. Easy as that!
The challenge is capturing the exact moment to sell. No one rings a bell and shouts, “It’s time!”
That’s when you turn to stochastic indicators, the most accurate and reliable technical tools for determining timing. Stochastics measure the relationship between a security’s closing price and its price range over a set timeframe. These indicators are easy to read, as they show when price action hits overbought and oversold levels.
An oversold stock reads above the 80 levels – time to sell! And undersold stock is below the 20 level – time to buy!
I also use the volume weighted average price, or VWAP. This indicator tells you the average price a security has traded at throughout the day. It looks similar to a moving average line on a chart, so it’s a great way to see if a price is hitting/overcoming resistance.
Use these indicators to find winning trades
There’s no guarantee in trading, of course, but if you use price action, stochastics and VWAP, you will have an edge at finding the best odds at predicting the price move and therefore, when to sell a winning a trade.