August 22, 2018

Trading Options with Candlesticks

Bullish EngulfingStatistics show that over 80% of options traders lose money. Because of their very nature, stock options seem to stack the odds against the trader from the very start. Profiting in stock options requires the trader to correctly analyze and predict a future price move. Then the trader will have to successfully forecast the timeframe when that move is going to happen! Finally, the trader must also know how big that price move is going to be! The combination of these three factors makes it extremely difficult for the average trader to enter an option trade successfully.

So how can candlesticks turn these disadvantages onto advantages? When trading using candlesticks we find an answer to each of the elements that make up a successful option trade.

First is the price move itself. As a trader becomes more and more proficient with reading candlestick patterns they also become more accurate in determining changes in market direction. Candlestick reversal patterns have the unique ability to give us a visual snapshot of market psychology and when it is changing. Determining when this change takes place gives the candlestick trader an edge in entering a successful trade, either by entering an established trend or an even more profitable change in market direction. [Read more…]