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Understanding Moving Average As An Options Trading Indicator

By Edited Oct 27, 2013 0 0

Do you think that trading is a rewarding venture? Are you someone that likes to take a long term view of any situation and you are looking at improving your financial situation? The options trading market is something you should consider. With the right strategies you would be able to make a sizeable income to live with.

The key to determine the appropriate strategy in the option trading market, is knowing what the vital option trading indicators represent. They help you assess what the situation is in the market guiding you to make effective decisions.

The Moving Average as a reliable Option Trading Indicator

While various indicators exist in the option trading market, and they serve to help you determine what actions you would take when trading options, you must understand that it is only when you have an in depth understanding of these tools that you can use them effectively. The utility of these tools in turn drive the profitability of your trades. The moving average option trade indicator is a simple but smart tool you can use as an effective guide in the market.

What this tools represent in actual sense is the addition of all the closing prices for a particular trade divided by the the period relating to that interval period. This time span can be from between five to two hundred days. In fact you can use any number of days that you want, but overall the purpose is the same. This is the basic concept behind this option trading indicator known as the moving average. It is obvious that prices are unpredictable, they swing up and down with varying probability in what direction they would go, no matter how much they vary on a day to day basis the key point to note is that they would always tend to their fair value otherwise known as the moving average. Thus the moving average helps us spot areas that could be valuable in trade either to buy, to hold or to sell. However if the trend of a moving average changes, it implies that trend is indeed over and a new one may be starting.

What is the perfect timing to sue for a moving average to achieve the best return in the option trading market? The truth is that there is really nothing like a perfect timing. The best time span would depend on your personality and the volatility of the market. However the two most favored time frame are the 20 day moving average and the 40 day moving average.


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