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The Market Taker Take: Option Trading Blog

Define risk using ATRs

Define Risk Using ATR, Value and Acceleration Areas

The first task after entering a position should be to determine risk. Risk may be a physical or mental stop loss. Trading is tough enough; setting risk relieves some tension and allows the trader to concentrate on profit potential and trade management. Risk can be measured using average true ranges (ATRs) or

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Bear Put Spread

Bear Put Spread – The Right Time for This Options Strategy

There are multiple strategies for an options trader with a bearish, bullish or neutral bias. If a trader has a bearish directional outlook, he can use a long put option strategy to capitalize on an underlying moving lower. But sometimes buying a put option can be riskier than the trader wants because

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Define risk using ATRs

Logical Steps for Developing Short-Term Trade Strategies

When creating short-term trade strategies, the first task is to understand what upcoming fundamental events are likely to have the biggest impact. In the financial markets at this point, employment and inflation data have the most impact on stocks, ETFs, bonds, foreign exchange, precious metals and even energies. On the first Friday

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Implied volatility - VIX example

Implied Volatility – How Traders Can Benefit From It

Implied volatility is the forecast of a likely movement in the underlying. Keeping it simple, implied volatility is how options are priced. When IV is higher, option prices are higher and vice versa. Generally, when the market moves lower, option prices and IV increase as demand goes higher for protection or a

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Daily Candlestick Chart

Trade Setups Using Candlesticks and Average True Range

All technical tools perform at times, but none pay off all the time. The trick to technical trading is to identify when an indicator is likely to detect a high percentage winning trade. I have researched many charting techniques, indicators and tools in my 30-plus years in the commodity and stock markets.

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technical indicators

How to Choose Option Strategies Using Technics and Logic

There are no trading tools, indicators or patterns that pay off every time. However, they all have their moments. Good traders know when probabilities have shifted to favor a trend style trading strategy or a mean reversion (counter trade) approach. There are two essential technical indicators traders utilize to create strategy. One

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Option Trading Strategies

Top Option Trading Strategies in Any Market

Today we’re going to look at some of the top option trading strategies for any market condition. As I’m sure you have noticed, the market can be a very unpredictable beast. At times it can leave you scratching your head and crying. However, one thing is for certain: There is a strategy

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Lessons From the Trading Pits

Spend time with a broker or pit trader from the era when all trades were executed in a trading pit at an exchange and you will learn about the open outcry and the information it provides. Pits were created to facilitate trade. To an untrained eye a trading pit looks like a

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lessons from the trading pits

Support and Resistance Trading Techniques

Support and resistance are levels on a chart that tend to keep the underlying from moving through those levels. Support keeps the underlying from moving lower and resistance keeps the underlying from moving higher. Generally, two or more levels can be potential support and resistance but sometimes once is enough like a

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How to spot market extremes

How to Spot Market Extremes

One of the more difficult tasks traders face is choosing areas where market extremes (high or low) are likely to form.  Pinpointing ideal entry and exit levels is possibly the hardest but most desired task we face. In the industry, buy areas are known as support and sell zones are called resistance

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Option Vega

Selling Naked Calls and Puts – All You Need to Know

There are only four things to do as an option trader that do not involve a spread. Most option traders know that they can buy a call option as a bullish strategy and buy a put option as a bearish strategy. But many option traders have never looked at selling naked calls

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technical indicators

Market Sensitivity and Commodity Chains – How to Check

Market sensitivity is often discovered through commodity chains. In the MTM Daily Edge sessions, we examine many markets for patterns that typically precede the start of trends, as well as the setups that often occur when a trend is near exhaustion. Pattern recognition and technical analysis are a big part of many

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Market Analysis

Why Market Analysis Is Critical When Option Trading

It goes without saying that understanding options and various option strategies is crucial for an option trader, but market analysis is also critical in option trading. Smart traders and investors use diligent market research to get a better grasp of the market, which can give them an additional edge as an option

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How Employment Data Report Affects Stock Market

On the first Friday of each month, we get a look at the recent employment data and how the report affects the stock market. These numbers are frequently the catalysts that start trends and even end them. Job creation is an essential sign of a healthy economy. The Federal Reserve has a

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Collar Option Strategy

What Is a Collar Option Strategy and How Does It Work?

When I think of collars as an option trader, I think of sleeping better at night. Option collars can potentially protect a stock position in case the position declines. Like everything that involves options, there are trade-offs too. Collars cannot work miracles, but they do have their benefits as well as their

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S&P Futures chart

How to Improve Your Analysis of Market Sentiment

Fundamentals move markets; technicals record history and illuminate patterns. Great traders incorporate both schools to improve analysis of market sentiment. Professional traders refer to the economic calendar for events/reports that have the potential to alter a trend or start a new one. Recognizing the immediate reaction following an unexpected event is essential

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Option Theta - long call

Calendar Spread and Long Calendar Option Strategies

I make no bones about it: The calendar spread is one of my favorite option trades. Like many option strategies, it can be used short term and long term as well as for a bullish, bearish or neutral outlook on the underlying. That is hard to beat in my opinion, but let’s

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Trade entry

Tips on How to Improve Your Trade Entry and Exit

Traders strive to sell at the extreme high and buy near the low of a move. Setting precise entry and exit levels is a difficult task, but it is a skill that can be honed. In this business a long position or buy level is recognized as support and a short position

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Option Theta - long call

How to Use Option Theta in Your Trading

Trading options can be a long and frustrating journey without discipline and solid understanding of the option greeks, including option theta, and how to use them in your trading. Most option traders know there is a time component to options. But surprisingly, many do not have a firm grasp of what that

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Traders Toolbox

Build Traders Toolbox with Right Technical Tools

As an educator I make it a point to help students develop a solid fundamental and technical foundation. Years ago, I started my own “traders toolbox” that is now filled with facts, axioms, statistics and technical indicators. I refer to my toolbox when trading and creating strategies. My first experience in the

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