Technical Analysis


Options traders understand one simple truth, options expire. As a result, technical analysis often becomes the most used analytical tool. Technical analysis is defined as an attempt to identify price trends within a market. Further, these trends can offer guidance on future price movements.

Through the use of technical indicators, signals, patterns, or the chart itself. Traders use the information depicted to identify areas of potential imbalance. Imbalances that, if existent, determine the markets ebbs and flows.

At OptionID we’ve spent years combing the markets and sifting through thousands of indicators to design our technical analysis approach. Further, its an approach that has provided us a simple but effective method for spotting trades before they happen or while they’re happening.

Technical Analysis Criteria

  1. Market Trend
  2. Support/Resistance
  3. IV Rank
  4. MACD
  5. RSI
  6. Pivot Points

Market Trend

The prevailing market direction determined through the use of moving average indicators. Moving averages offer traders clear insight into the current market direction. In any case, moving averages are a mainstay technical tool at OptionID and will be discussed in each OptionID’d.

Support/Resistance

The second most important technical tool is support or resistance. These arbitrary levels often push price higher or force it lower. Support or resistance occurs when price has traded at a price level in the past and is currently trading at that level. With support suggesting a move higher and resistance suggesting a move lower, respectively.

IV Rank

A tool designed to easily glimpse current implied volatility against past implied volatility. In other words, we’re looking to see how cheap or expensive options are today compared with the past. Thus, determining whether a long or short position is most favorable.

MACD

At OptionID, MACD is our favorite indicator. In fact, if we had nothing else we could design an entire trading strategy using it alone. For example, the MACD indicator provides insight into overbought/oversold conditions, trend conditions, and price divergences. For a more thorough discussion check out this post about the MACD indicator.

RSI

The RSI indicator is primarily used to identify overbought or oversold market conditions. However, using it in conjunction with other indicators will increase its value. If you prefer to read more check out this post about the RSI indicator.

Pivot Points

Identified as price extremes in one direction or another just before price reverses direction. Not the easiest of indicators to identify in real time but if caught early enough can lead to impressive trades. Therefore, we’ll always look for pivot points in support of our selected trade.


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technical analysis