Trading Options Using Support And Resistance
For the options trader who trades the marketusingtechnical analysis, support and resistance are important conceptsfor them. The support and the resistance levels are from where the prices have shot up or down in the past. These areimportant price points that give theentry and exit prices for your trade.
It could get abit difficult to spot thehigh probability support and resistancelevels at first. This is because these levels need to be spottedvisually. However, once you get the idea you can easily spot theselevels on the technical chart.This website guides you on how to spot these major levels.
A support level is an area where the traders arein amajority who want to bea buyer in the asset. Thisbehaviorhelps tosupportthe prices and this thus creates abullish trend. The support level is testedwhen the market has historically shown a big price move to the upsidefrom that level. It could leavethe level with big bullish candles or have some gap up movements from that level. Thesupport level is the price at which the asset is very cheap andthisis whythe maximum buyers have placed theirbuy at this level.
Therecan be anumber of support levels on thetechnical chart and as a technicaltrader, you should be able to spot the levels that haveahigh probability of working out. The support levels that are being tested for the first time have thehighestprobability of working out. Eventually, with more number of touches,the level starts to weaken.
Anoptionstraderwill look to buy a call option at the support level.
The resistancelevelis from wherethe majority ofmarketparticipants have sold off the asset. This shows achange in the behavior in the market and the resistance level is from where the marketturned bearish. Theresistancelevels are the strongestwhen the price moves from thatlevelwith big bearish candles or with gaps. The price is veryexpensive at this level andthus themajorly of sellers areplaced at this level.
There could be many resistance levels on the chart and as atrader, you needto figure out the level that has the highestprobabilityofworking out. If the level has beentested many times then it has a high chance of not working out. You thus need to lookfor a levelthatis beingtested for the first time. This is a highprobabilityresistancelevelandtheoptionstraderswill buy aput option at the resistance level.