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Best Intraday Nifty Option Strategy – There are hundreds of technical indicators that traders can use depending on their trading style and the type of security to be traded.
This article focuses on some important technical indicators that are popular among options traders. Also, note that this article assumes familiarity with options terminology and calculations related to technical indicators.
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Since options are subject to time decay, the holding period matters. A stock trader can hold a position indefinitely, while an options trader is limited by the limited duration defined by the option’s expiration date. Given time constraints, momentum indicators, which tend to identify overbought and oversold levels, are popular among options traders.
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The relative strength indicator is a momentum indicator that compares the size of recent gains to recent losses over a specified period of time to measure a security’s speed and change in price movements in an attempt to identify overbought and oversold conditions. RSI values range from 0-100. with a value above 70 generally considered to indicate overbought levels and a value below 30 indicating oversold levels.
RSI works better for options on individual stocks, as opposed to indices, as stocks show overbought and oversold conditions more often than indices. Options on highly liquid, high-beta stocks are the best candidates for short-term trades based on the RSI.
All options traders know the importance of volatility and Bollinger Bands are a popular way to measure volatility. Bands expand as volatility increases and contract as volatility decreases. The closer the price moves to the upper zone, the more overbought the security may be, and the closer the price moves to the lower zone, the more oversold it may be.
A price move outside of the zones may mean that the security is poised for a reversal and options traders can position themselves accordingly. For example, after a breakout above the top zone, the trader can initiate a long put or short call position. Conversely, a break below the lower band may represent an opportunity to use a long or short strategy.
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Also, in general, note that it often makes sense to sell options during periods of high volatility, when option prices are high, and to buy options during periods of low volatility, when options are cheaper.
Intraday Momentum Indexis a good technical indicator for high frequency options traders who want to bet on intraday moves. It combines the concepts of intraday candlesticks and RSI, thus providing a suitable range (similar to RSI) for intraday trading, indicating overbought and oversold levels. Using the IMI, an options trader may be able to identify potential opportunities to initiate a bullish trade in an intraday correction, or initiate a bearish trade in a downtrend with an intraday bullish price.
It is important to be aware of the “uniqueness” of price movements. When there is a strong visible uptrend or downtrend, momentum indicators will often show overbought/oversold readings.
To calculate the IMI, the sum of days is divided by the sum of days up plus the sum of days down, or ISup ÷ (ISup + IS down), which is then multiplied by 100. While the trader can choose the number of days to look at, 14 days is the most common time frame. Like the RSI, if the resulting number is greater than 70, the stock is considered overbought. And if the resulting number is less than 30, the stock is considered oversold.
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TheMoney Flow Indexis a momentum indicator that combines price and volume data. It is also known as volume-weighted RSI. The MFI index measures the inflow and outflow of money into an asset over a specific period of time (usually 14 days) and is an indicator of “trading pressure”. that the security is oversold.
Due to the reliance on volume data, MFI is more suitable for stock-based option trading (as opposed to index-based trading) and longer duration trading. When the MFI moves in the opposite direction of the share price, this can be the main indicator of a trend change.
The put-call ratio measures volume using put options versus call options. Rather than the absolute price of the put-call ratio, changes in its price indicate a change in overall market sentiment.
When more calls are bought than put, the ratio is above 1, indicating bullishness. When put volume is higher than call volume, the ratio is less than 1, indicating a bearish trend. However, traders sometimes view the put-call ratio as a contrarian indicator, choosing to trade the market trends in the hope of an impending reversal.
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Open interest denotes the open or unsettled contracts in options. The OI does not necessarily indicate a particular uptrend or downtrend, but it does provide clues about the strength of a particular trend. Rising open interest indicates fresh capital inflow and hence sustainability of the existing trend, while falling OI indicates a weakening trend.
Yes, limit orders are common for trading single options as well as spreads. Purchase orders are also used when immediate replenishment is required.
Option prices can be modeled in a number of ways, but each values an option based on the following variables: the underlying price, the strike price, time to expiration, interest rates, and volatility.
The risk content of options is measured using four different dimensions known as “the Greeks”. These include Delta, Theta, Gamma and Vega.
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In addition to the technical indicators mentioned above, there are hundreds of other indicators that can be used to trade options (such as stochastic oscillators, average true range and cumulative tick). In addition to these, there are variations with smoothing techniques on the resulting values, averaging principles and combinations of various indicators. An options trader should choose the indicators that best suit his trading style and strategy after carefully considering the mathematical dependencies and calculations.
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However, once you have this information, you should understand the characteristics of these stocks, especially their liquidity and volatility, in order to choose the best ones to trade. Once a trading opportunity has been identified (a single stock, multiple stocks, or exchange-traded funds known as ETFs, etc.), the next step is to find some ways to take advantage of them.
Liquid stocks tend to have high trading volume. This allows larger quantities to be bought and sold without significantly affecting the price. Because intraday trading strategies depend on speed and precise timing, a high degree of volume makes it easier to enter and exit trades.
Depth is also critical because it shows you how much liquidity a stock has at various price levels above or below the market’s current bid and offer.
Day traders require price movement to make money. Day traders can pick stocks that tend to move a lot, either in dollar terms or in percentage terms. These two filters often produce different results.
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Keep in mind that when volatility spikes, it may be possible to generate above-average profits, but you also run the risk of losing more capital in a relatively shorter period of time.
While there are those who specialize in contrarian plays, most traders look for stocks that move in correlation to their sector and group of indicators. This means that when the index or sector rises, the price of the individual stock also rises. This is important if the trader wants to trade the strongest or weakest stocks each day. If a trader chooses to trade the same stock every day, it is wise to focus on that one stock. there is no need to worry about whether it correlates with anything else.
You may have picked the sweetest stock in the world, but profiting from it will depend on following specific strategies. While there are many intraday strategies, the important thing is to stick to some established guidelines. By looking for specific intraday trading signals, you are more likely to succeed.
The market always moves in waves, and it is the trader’s job to ride those waves. During the uptrend, focus on
