Through our years of experience trading options with weekly expiration dates on high beta stocks we have found it difficult to make trading decisions solely based on lagging indicators such as moving averages, stochastic’ etc. They only give a trader an edge when the market aligns with the arbitrary time period settings used in these indicators.
Since premium of options experience their greatest deflation or inflation at points of price reversals of the underlying stock, we opted to find a way to develop indicators that would anticipate a “reversal zone”. Lagging indicators only trigger an alert when the reversal already has happened, and therefore one is not able to capture the larger move in option pricing.
In order to adhere to our Trading Strategy set out in the TradePlan, we need to develop a method based on indicators that is unambiguous and objective.
Before we continue describing the several indicators we have developed and the principals they are based on, we assume that the reader is a somewhat experienced trader, understands options, and their Greeks. As well has the comprehension skills to understand the basic mathematical functions that make up the indicators and has the drive to do research and study on his/her own. The material we will discuss is no secret, it has been covered by several publications (see our “Recommended reading” list). We merely have implemented our own interpretation, which has resulted in our derivative of “Harmonic Patterns” ; the Gr8Harmonic indicator.
Besides the Gr8Harmonic indicator we have developed several other tools that complement the Gr8Harmonic indicator, specifically to trade weekly options on high beta stocks.
are you ready?