Tag: Day Trading (Page 3 of 3)

3 Indicators That Will Improve Your Scalping

Scalping Trading
Day Trading Tips: How to improve your scalping | Scalping Trading

Published by FrankNez Team.

Scalping is a trading style that involves taking positions and existing within a few minutes.

It’s quite common with day traders as it affords them many opportunities to profit within a short period.

Most markets are volatile, with crypto being the king.

It is not unusual to see double-digit movements within the market in a day, and this volatility is a blessing in disguise.

The trader that is able to capitalize on the volatility gets rewarded handsomely.

One way to exploit this volatility is by scalping.

All you need to do is study the market, take a position, and exit once your take profit target is hit.

Since trading profitability lies in being able to predict which direction the market will take, price action is king.

However, combined with indicators, your chances of success are improved tremendously.

Below let us explore 3 trading indicators that can boost your scalping when combined with price action.

Moving Average (MA)

how to use moving average when scalping stocks
How to use Moving Average when scalping stocks

Statisticians use moving averages to analyze data points by creating a series of averages of different subsets of the full data set.

In trading, MA is used to smooth out the price data of an asset by creating a constantly updated average price.

Thanks to MA, the impacts of random, short-term fluctuations on the price of an asset over a specified time frame are mitigated.

When scalping, you can use MA to identify an asset’s trend direction or determine its support and resistance levels.

However, note that MA is a lagging indicator as it uses past data, and the larger the timeframe, the greater the lag.

Also, it’s customizable for 9, 15, 20, 30, 50, 100, and 200 days.

And the shorter the time span you use to create the average, the more sensitive it is to price changes.

When scalping, you can use the 9 and 20 MA to enter and exit the market for quick profits.

In an uptrend, wait for the price to pull back to the 9 MA.

If the next candle is green, you can enter and set your stop loss below the 20 MA.

If you do not intend to exit immediately, use a trailing stop loss to lock your profits as the price increases.

Related: How to Trade Options in The Market with a 9-5

Moving Average Convergence Divergence (MACD)

How to use MACD when scalping
How to use MACD when scalping

If you are new to trading, you might wonder what is MACD?

It stands for moving average convergence divergence.

This indicator is used to measure both trend momentum and direction.

It consists of two lines, one blue (signal line) and the other orange (MACD line).

Crossovers of these lines present the most opportunities for scalpers since if the signal line crosses the MACD line to the upside, it means upside price action can be expected.

On the other hand, if the MACD crosses over the signal line, then downward price action can be expected.

Relative Strength Index (RSI)

Scalping Options Trading
Scalping indicators | Day Trading Tips | Options Trading Tips

The RSI or relative strength index is an algorithmic trading tool that measures a currency’s price action momentum change.

The indicator will take price action data and convey the information through a simple line graph.

This indicator displays the relationship between current price action and buying/selling conditions.

It ranges from 0-100, with most traders using parameters 30 – 70.

The logic of the indicator is simple: if the asset price is trending between 0-30, it is said to be oversold, thus considered cheap, while if the price is trending above 70, it is said to be overbought, thus expensive.

If you are scalping an uptrend, you want to buy “cheap” on the RSI and sell at the overbought level.

The opposite applies in a downtrend.

Additionally, watching out for divergences between price and RSI can indicate an imminent change in trend.

Another thing you need to remember is scalping requires use of platforms with high liquidity.

Therefore consider using the likes of PrimeXBT for fast trade execution.

Also, as mentioned earlier, remember, price action is king.

First of all, determine the direction the asset is headed, then use the above indicators to strengthen your bias.

This increases your confidence in taking a given position and tremendously improves your trading success.

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Calls VS Puts: The Biggest Differences in Options Trading

Calls VS Puts
A simple guide to Calls VS Puts – Puts vs Calls – Calls vs Puts explained

This article is going to help new investors identify the difference between calls vs puts.

I’m going to provide you with a very simple overview and breakdown of what these two trading strategies mean in the world of options trading.

And if you’re not familiar with what options trading is, I will further explain that down below.

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What is a call option?

What is a call option?
What is a call option? – Calls vs puts explained

A call option is a bullish strategy that allows a trader to profit from a trade on the upside.

The trader essentially bets that the price of a stock is going to go up by buying call options.

How does a call option work?

When you open the options chain, you will have many contracts to choose from, ITM, ATM, or OTM, which I’ll use as a quick example for now.

If you are betting on the price of a stock to go up, you might buy a contract with a strike price of a few dollars above the underlying securities’ current price, depending on your risk.

If the stock does indeed move up in price, you will begin to see gains on your contract.

You may then sell your contract and profit from your play when you are ready.

What is a put option?

what is a put option?
What is a put option? – calls vs puts options – puts vs calls stocks

A put option is a bearish strategy that allows a trader to profit off a trade on the downside.

Unlike calls, traders buying put options are betting the price of a security will drop.

How does a put option work?

I’ll use another OTM example for now and explain the other scenarios below.

You will have many options in the options chain to choose from.

Here you will be able to select a contract to buy based on the ‘strike’ price you’ve selected.

The strike price you’ve selected is where you believe the price of a security will go down to.

If a price of a stock is at $20 and you buy a contract for a strike price of $17, you’re betting that the price of the stock will fall in the future.

If the stock falls to $19 then $18, you will begin to see gains on your bet.

The closer the price of the underlying security gets to $17, the more gains you will see.

You can then close your position at any moment before the contract’s expiration date and take profits.

Both these examples are examples of an OTM contract which I’ll explain more below.

Here are other examples of how calls vs puts work.

What is ATM and ITM?

ATM vs ITM
Options trading: ATM vs ITM

ATM stands for “at the money”.

At the money (ATM) is the current price a stock/security is trading at.

When your strike price is near the current share price this is considered to be “at the money” (ATM) for both calls and put options.

ITM puts

ITM stands for “in the money” and will be a little different for puts vs calls.

When a strike price is in the money for put options, it means the price is above the “at the money” (ATM) price.

Example: You’re betting the price of a stock will go down, so you buy a put options contract “ITM” for $11 while the stock is currently trading at $10 (ATM).

You contract has a higher probability to earn gains since the current share price (ATM) is already below your strike price (ITM).

The further the price of a stock goes down from your strike price, the more money you make.

ITM calls

When a strike price is in the money for call options, it means the price is below the ATM price.

Example: You’re betting the price of a stock will go higher so you buy a call option contact “ITM” at $9 while the stock is trading at $10 (ATM).

Your call option contract has a better probability of making money from the start since the current share price is already above your strike price.

If the price of that stock continues to surge, then you will continue to make gains.

“In the money” (ITM) contracts are a little more expensive to buy since your probability to make money is higher.

“At the money” (ATM) contracts which are closer to the “current” share price had a medium risk factor and are cheaper than ITM contracts.

So then what are OTM contracts?

OTM “out the money” explained

OTM Explained
Calls vs puts explained – OTM – Calls vs Puts options

OTM, or “out the money” is the strike price above the ATM for calls, and the strike price below the ATM for puts.

Call option example: If you buy a call options contract OTM at $12 and the price of the stock is currently at $10 “at the money” (ATM), you are betting the price of a stock will rise above $10 per share.

Put option example: If you buy a put options contact “out the money” (OTM) at $8 and the price is currently at $10 “at the money” (ATM), you are betting the price of a stock will go below $10.

Remember, the closer a stock’s price gets to your strike price, the more gains you will reap.

So, the further out the money your strike price is, the higher the reward may be.

Should you buy ATM, ITM, or OTM?

Every trader will use the strategy that best tailors to their risk.

  • Out The Money (OTM) = High Risk / High Reward
  • At The Money (ATM) = Medium Risk / Medium Reward
  • In The Money (ITM) = Low Risk / Low Reward

Traders will need to study the performance of an underlying asset to get a feel and understanding of where the price may go.

Once you have determined whether you will be buying puts vs calls or vice versa, then you may begin to look at the contracts available.

Options contracts explained

Every 1 contract equates to 100 shares of a particular stock.

OTM contracts are usually less expensive.

With these contracts you can buy 100 shares of a stock for only cents.

ITM contracts are more expensive because they are the safest choice.

ATM contracts are in between ITM and OTM in pricing.

The options chain will allow you to choose when contracts based on short-term or long-term expiration dates.

You can go short or long on both a call and put options contract.

These expiration dates may vary from only a few days to weeks, to months, and even years.

Whether you should trade short-term or longer-term expiration options contracts is a strategy that will be highly based on your trading goals.

Where can you trade options?

options trading with webull
Options trading with Webull – calls vs puts options – calls vs puts explained

The most popular platform to trade options is Webull.

Webull is where I personally began learning reading charts and familiarizing myself with the options chain and data.

Here traders will be able to purchase calls vs puts or vice versa.

Some traders use both strategies to make money during a bull and bear market.

Other platforms where you can trade options include:

  • TD Ameritrade
  • ETrade
  • Robinhood
  • Fidelity

If you’re already invested in stocks, you might already be using one of these platforms.

The difference between trading stocks and trading options is that you will need to open a margin account for options.

A cash account will not allow you to buy calls vs puts.

You can earn 5 free stocks from Webull when you sign up using my affiliate link.

If you choose not to keep these 5 stocks, you can sell them and fund your margin account to trade options.

Puts VS Calls: Why trade options?

puts vs calls: why trade options
Puts vs Calls stocks – calls vs puts options – calls vs puts explained

Buying puts or buying calls allow traders to bulk up on stock and use leverage to make money in the stock market.

There are 4 different ways you can trade options.

  1. Buy Calls
  2. Sell Calls
  3. Buy Puts
  4. Sell Puts

All four essentially allow you to use leverage and make money whichever side of the play you want to begin trading options.

However, selling calls and selling puts from the get-go will require further in-depth explanation, which I will do in another article.

For today’s breakdown, I’ve explained buying both calls and puts.

There are a variety of things that attract investors to trading options.

  1. Short-term gains
  2. Big returns
  3. Losses are limited to what you put in your contract
  4. Quick accumulation of cash / shares

If you’re here today, it’s because you’ve probably seen people in your space talk about how much money they’ve made playing options.

And while options can yield a full-time income stream, new traders should also be aware of the risks.

Is trading options risky?

Is trading options risky?
Calls vs puts options – puts vs calls stocks –

Trading options has its risks as bets aren’t 100% guaranteed to play in your favor.

However, there are a few things you can do to increase your chances at becoming profitable.

  1. Familiarize yourself with technical analysis / chart patterns
  2. Only buy what you can afford to lose

While traders can certainly trade based on market sentiment, it would be wise to gain some understanding of how prices move through technical analysis.

TA can help traders determine the trajectory of a stock’s price moves in the coming minutes, hours, days, and even weeks.

It’s best to armor yourself up and learn as much as you can to properly set yourself up for success.

If you’d like me to do a write-up on bullish and bearish patterns leave me a comment below.

When it comes to choosing between calls vs puts, it really comes down to adapting to the changes in the market to help you increase your income potential.

If you have any questions, be sure to leave a comment below.

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