This Method involves the help of a monitoring tool usually its provided by the Online trading brokers or signal providers to give us Indicators of traders tendency. Also all the traders tendency won’t be true always.
Trader’s tendency indicators will show the % of traders choosing either “Call” or “Put”. Best example is shown in the picture below.
Types of Trends indicators to win the trades.
- Trend Following Indicators
- Indicators to Confirm Trends
- Overbought and Oversold Indicators
Illustration for Trend Following Indicators and what should you do if you find on?
In this category, popular indicators is the moving Average. You can use these indicator(Moving Average) to estimate another crossover between two moving averages.
What should you do should with this indicator?
Put Options: If you see Moving Average crossover follow an uptrend, go for Put options.
Call Options: If you see a bullish trend, go for Call Options.
Indicators to Confirm Trends
This category has Powerful and most accurate tool, which is used measure the difference between two moving averages. Then the difference is plotted against a histogram to predict a forecast pricing direction for the traders. This Indicator is called as MACD(Moving Average Convergence Divergence)
What should you should do with this indicator?
If you see a BUY signal in the Moving Average Convergence Divergence, at the same moment if you see a bullish Moving Average crossover, CALL options should be used.
Overbought and Oversold Indicators
In this category, Tool used is named as Relative Strength Index (RSI).
Consider a situation when an asset prices goes high and become too expensive to buy, people tendency will be not to buy that asset and sell immediately to gain the money invested in it. This kind of situation is OverBought Condition and PUT options have to be called.
Similarly, you can understand the situation for CALL options(OverSold).