The Average Directional Index is an indicator that measures the strength of a trend. For example, it can measure whether an uptrend or downtrend is gaining momentum or slowing down. The ADX indicator combines the two and produces a unified trend strength indicator. The ADX indicator is an oscillating indicator, ranging from 0 towith 0 indicating flat trading, and indicating either a skyrocketing or plunging stock. The ADX only indicates the strength of the trend, and does not indicate its direction.
This article focuses on a few important technical indicators popular among options traders. Also, please note that this article assumes familiarity with options terminology and calculations involved in technical indicators.
The direction of the move which way? Duration of the move how long?
Sometimes it is very hard to remember these, which is understandable if you are a newbie. Let me give you a simple method for remembering the difference. Think of your hand motions when placing a telephone call.
Since options are subject to time decay, the holding period takes significance. Key Takeaways RSI values range from 0 to Intraday momentum index combines the concepts of intraday candlesticks and RSI, providing a suitable range similar to RSI for intraday trading by indicating overbought and oversold levels.
The open interest provides indications about the strength of a particular trend. RSI works best for options on individual stocks, as opposed to indexes, as stocks demonstrate overbought and oversold conditions more frequently than indexes. Options on highly liquid, high-beta stocks make the best candidates for short-term trading based on RSI.
The bands expand as volatility increases and contract as volatility decreases. It combines the concepts of intraday candlesticks and RSI, thereby providing a suitable range similar to RSI for intraday trading by indicating overbought and oversold levels.
Like RSI, if the resulting number is greater than 70, the stock is considered overbought. And if the resulting number is less than 30, the stock is considered oversold.
It is also known as volume-weighted RSI. When the MFI moves in the opposite direction as the stock price, this can be a leading indicator of a trend change. Instead of the absolute value of the put-call ratio, the changes in its value indicate a change in overall market sentiment.
When there are more puts than calls, the ratio is above 1, indicating bearishness. When call volume is higher than put volume, the ratio is less than 1, indicating bullishness. Open Interest OI Open interest indicates the open or unsettled contracts in options.
For indicator guide for options trading traders looking to benefit from short-term price moves and trends, consider the following:.