BEST INDICATORS FOR INTRADAY OPTION TRADING
Information Offered by Intraday Trading Indicators
1. The direction of the trend to determine the movement
2. The lack of or existing momentum within the investment market
3. Profit potential due to the volatility
4. Determine the popularity through volume measurements
There are two principal kinds of indicators in the market, namely lagging indicators and
leading indicators. Leading indicators (RSI) respond to the price movement quickly whereas
lagging indicators (Moving average, MACD, Bollinger bands) are more accurate than leading
indicators. The lagging indicators give confirmation, but leading indicators anticipate the
future.
1. Relative Strength Index (RSI) (14, 7, 3)
The relative strength index is a momentum indicator that compares the magnitude of recent
gains to recent losses over a specified period of time to measure a security's speed and
change of price movements in an attempt to determine overbought and oversold
conditions. RSI values range from 0-100, with a value above 70 generally considered to
indicate overbought levels, and a value below 30 indicating oversold levels.
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.
While 14,7,3 is a perfect setting for novice traders, consider experimenting to find the
setting that best fits the instrument you are analyzing, experienced traders switch to faster
5,3,3 inputs.
2. Bollinger Bands (20, 2)
All options traders are aware of the importance of volatility, and Bollinger bands are a
popular way to measure volatility. The bands expand as volatility increases and contract as
volatility decreases. The closer the price moves to the upper band, the more overbought the
security may be, and the closer the price moves to the lower band, the more oversold it may
be.
A price move outside of the bands can signal the security is ripe for a reversal, and options
traders can position themselves accordingly. For instance, after a breakout above the top
band, the trader may initiate a long put or a short call position. Conversely, a breakout below
the lower band may represent an opportunity to use a long call or short put strategy.
For 15 min chart, settings- 30, 1.3
3. Open Interest (OI)
Open interest indicates the open or unsettled contracts in options. OI does not necessarily
indicate a specific uptrend or downtrend, but it does provide indications about the strength
of a particular trend. Increasing open interest indicates new capital inflow and, hence, the
sustainability of the existing trend, while declining OI indicates a weakening trend.
For options traders looking to benefit from short-term price moves and trends, consider the
following:
Price Open Interest Interpretation
Rising Rising Market/security is strong
Rising Falling Market/security is weakening
Falling Rising Market/security is weak
Falling Falling Market/security is strengthening
4. Put-Call Ratio (PCR) Indicator
The put-call ratio measures trading volume using put options versus call options. 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 calls being bought than puts, the ratio is above 1, indicating
bullishness. When put volume is higher than call volume, the ratio is less than 1, indicating
bearishness. However, traders sometimes view the put-call ratio as a contrarian indicator,
opting to trade against market trends in hope of an impending reversal.
5. Moving Averages (50 EMA)
Traders often hear about daily moving averages (DMA), which is the most common and
widely used indicator. The moving average is a line on the stock chart that connects the
average closing rates over a specific period. The longer the period, the more reliable the
moving average. This indicator will help you comprehend the underlying movement of the
price, as prices do not move only in one direction. Stock prices are volatile and the moving
average indicator smoothens the volatility to provide an understanding of the underlying
trend of the price movement.
The 50- and 200-day exponential moving averages (EMAs) are more responsive versions of
their better-known cousins, simple moving averages (SMAs). In a nutshell, the 50-day EMA is
used to measure the average intermediate price of a security, while the 200-day EMA
measures the average long term price.
6. Moving Average Convergence Divergence (MACD) (12, 26, 9)
Moving average convergence divergence (MACD) indicator, set at 12, 26, 9, gives novice
traders a powerful tool to examine rapid price change.
7. Supertrend
The Super Trend Indicator is an overlay that connects multiple time frames to give you a
better view of the market scenario. Basically, the Super Trend Indicator combines different
time frames into one, which allows you to see if a trend will continue or not from one time
frame to another. The Super Trend Indicator looks at several different time frames, from the
past three hours to the past three months. If there are areas where two or more time frames
overlap, this means that they’re in the same trend and will likely continue in the future.
The Super trend indicator’s purpose is to determine market direction, not to time trades.
For 15 min chart, period is 7 and multiplier is 1.3
8. Parabolic SAR (stop and reversal)
Best technical indicator for option trading (nifty, banknifty and stocks) in Zerodha Kite app.
Traders want free buy/sell indicator for intraday trading in India.
Parabolic SAR (Stop and Reverse) is best technical indicator for option trading in Zerodha Kite
app. It is one of most popular technical analysis indicator used by Indian traders in Nifty and
Banknifty options which indicates trend reversal and stop loss point. SAR indicator is leading
indicator which generate buy and sell signals through it's dot path.
