Posts Tagged ‘Breakout systems’
Options trading system is a set of rules that determines the entry and exit points automatically for trading options. The entry and exit points are known as signals and prompt the immediate execution of trade. Various types of options trading systems are created and sold by different companies. The combination of technical parameters used in an options trading system determines its success. An options trading system removes human errors and inefficiencies as no human intervention or decision making is required in an automated system. A lot of systems are available through the internet which claims to provide huge profits from the options. But most of these are fake and part fraudulent schemes or scams. So the traders should be vigilant and should ask for trial version of the trading system and test it before buying it. Two of the most popular options trading systems are Trend Following Systems and Countertrend Systems.
Trend Following System
In a trend following system, the system waits for a major price movement in any direction and then buys put or call options in that direction. The signals are set under the assumption that the price movement will maintain the trend. Moving average system is a type of trend following system that uses moving average to detect a major price movement. Moving average is a technical parameter that shows the average price of a stock over a period of time. The entry and exit periods are usually fixed by a parameter called crossover.
Breakout systems are another type of trend following system based on the assumption that when a support or resistance is broken, the price movement continues in the direction of breakout.
Countertrend system is the system which buys when the momentum in one direction calculated mainly using oscillator, fades in one direction. The aim of this system is to buy at lowest price and sell at highest price. In a countertrend system there is no set time to exit positions.