Options Analysis

Options Analysis – Trading the Hype For Success
If you have ever browsed the Internet looking for stock tips, the offers jump off of the page literally screaming at you. “Start trading for BIG PROFITS by turning less money in MORE MONEY!” or “93% Winners, $18k Profit” or my favorite “Find out how to make over 87% gain monthly. Up 954% since Jan 2006!”

In spite of any promises that might be made to you, investing in the stock market has not been turned into some easy-to-learn program with astounding results, especially in the options markets. Substantial profits can be made but not because of some miracle program; if such a program existed, we would all spend the $49.95 to buy it and be incredible rich. In reality, profits are usually the result of strong options analysis, successful stock trading plans and technical analysis

In theory, options analysis and options trading are easy; all you need to do is find stocks that are going up and buy calls on them. Then you find stocks that are dropping and sell puts on them. That’s pretty easy, right? Well if it’s easy the reason is that you have spent the time researching, not because of some program off the Internet. Technical analysis and charting give you the silver bullet to increase your success in the stock market and a trading system like Japanese Candlesticks is the most powerful system available for options analysis.

What is Japanese Candlesticks?
Japanese Candlestick signals were invented around 1700 as a method of analysis in the country’s rice markets. The Japanese Rice traders analyzed reoccurring signals on trading charts when trying to pinpoint the exact times to get in and get out of their positions. Analysis with these signals made the Honshu family immensely wealthy. The signals they identified are as effective today in options analysis as they were centuries ago because while they were developed for futures analysis, they are equally powerful in options analysis.

Options analysis with Candlesticks
Candlestick charting is superior to standard bar charting. Bar charts are limited to showing you a price range for a given time period; it does not show you patterns which can help with identifying trading patterns. Japanese Candlesticks provides the type of insight needed for successful options analysis. Candlestick patterns are extremely powerful for options analysis because it provides the user with the three criteria of options trading: direction, time and magnitude.

  • Direction – Most investors have difficulty in identifying the direction of a price move. Utilizing Candlestick analysis greatly increases the probabilities of at least having a price move analyzed in the proper direction. Knowing the direction of a trend with a relatively high degree of probability allows the trader to produce high profit option strategies.
  • Time – The amount of time available for a movement in price is also an important factor. The strategy for a trade will be vastly different when considering a trade that will expire in one week versus a trade that will expire in two months.
  • Magnitude – Magnitude, the third key element, indicates stock volatility. Volatility is both the friend and the foe of investors. The Candlestick signals provide the ideal search technique for finding the trades that will move in the magnitude required to make successful trades. Utilizing gaps located by the Candlestick charts provides a source of high profit potential trades. Gaps, or windows, appear during options analysis and indicate to investors when they should get in or out of a position with vigor.

Since an investor is able to analyze direction, time and magnitude with Japanese Candlestick charts he or she is better equipped for options analysis and for knowing when to enter or exit positions. Options analysis with Japanese Candlesticks is not a magic wand for conjuring successful trades but a valuable tool for identifying conditions in the market and finding the profitable times to enter and exit trades.