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Technical Leading Indicators


In the world of options trading, there are thousands of optionable securities. An options trader's first task is to select a limited number of securities that are worth analyzing. There are many ways to choose such securities. For example, one might look at Yahoo's list of yesterday's most active stocks by share volume and pick a few of the top-ranked securities. Another way is looking at the WSJs list of yesterday's volume gainers (based on the % change of the current daily volume vs. the 65-day average daily volume) and pick a few of the top-ranked securities. And, a third way is to use one or more leading indicators.

Of the myriad technical indicators available in SC, which leading indicator(s) are better suited for such task?

Thank you!

Doctor T


  • Joanne Klein's public chart list "Above the Green Line" uses the IBD ranking system and then a 5,1 Fast Stochastic to pick entries and exits. I think she is oriented toward buying and selling the stock, not the option, but worth a look.

    On Stockcharts, you could try the SCTR indicators, although there would still be a lot of weeding to do.

    The problem with stock options is, your timing has to be exquisite, and sometimes, even if you are right, you don't get paid enough (or at all) for your risk (mainly due to changes in time premium). Although the gains look tantalizing, they are hard to catch, and when you miss, that leverage works against you.

    An alternative is options on index futures, like OEX, NDX or SPX. After you have spent some time tracking these indexes closely, you get a better feel for how they behave than you could switching from stock to stock.

    In either case, if you are going to win with long options (buying them, rather than selling them), you want to enter when the time premium is very low, and exit when it is very high. So, the ideal entry (in an active, rising stock) is when the underlying price action seems to go to sleep for several days after a decline - range gets very narrow and volume very low (relative to recent activity). This indicates selling has been exhausted, leaving the way clear for buyers. The hard thing is, you have to enter without any confirmation that buyers are coming in. Once the buyers appear, the time premium shoots up and you lose your advantage.

  • Dear MarkD,

    Thank you for your reply.

    I'll look at (1) the IBD ranking, (2) the 5,1 Fast Stochastic indicator, and (3) the SCTR indicator.

    Of course you are right about buying stock calls. However, as a newbie, buying stock calls rather than buying stock puts, or selling puts and calls (where the money appears to be), appears to be a better learning path.

    You are also right about trading index futures. Or, as others have suggested, trading ETFs. However, again as a newbie, I know more about stocks than I know about index futures or ETFs.

    For now, my main goal is to learn the business.

    Doctor T
  • markdmarkd mod
    edited February 2018
    Well, your call, so to speak. Have fun with it!

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