TRADING OPTIONS Using Technical Analysis to Design Winning Trades Greg Harmon WlLEY
CONTENTS Foreword xi Introduction 1 PART I IDENTIFYING AND UNDERSTANDING THETREND 7 CHARTER 1 Identifying the Major Trend 9 Market Influencers and Intermarket Relationships 14 Significant Market Ratlos 19 Other Indicators 22 Conclusion 27 CHARTER 2 Sector Review Analysis 29 Case Study: Sector Ranking 30 Relative Strength 37 Conclusion 38 PART II TECHNICAL ANALYSIS FOR IDENTIFYING INDIVIDUAL STOCKS 41 CHARTER 3 Classical Technical Analysis 45 Support and Resistance 45 Patterns 49 Conclusion 63
65 CHARTER 4 Japanese Candlestick Patterns 66 Reversal Patterns 76 Continuation Patterns 80 Indecision Candles Conclusion 83 85 CHARTER S Derived and Quantitative Analysis 85 Fibonacci Analysis 91 Harmonie Trading 100 Elliott Wave Andrews' Pitchfork 101 103 Conclusion CHARTER 6 Price Derivatives, Momentum, and Other Indicators 105 Relative Strength Index (RSI) 105 Moving Average Convergence/Divergence 110 (MACD) Indicator Bollinger Bands 112 Moving Averages 114 Vlll Conclusion 119 CHARTER 7 TheWatch List and Initial Plan 121 H Z Create the Mosaic 121 o u Other Information 123 The Plan 125 Conclusion 130 PART III OPTIONS STRATEGIES 133 CHARTER 8 Introduction to Options 135 Definitions 135 Expiration and Exercise 136 Contract Size 137 Price Terminologv 137 Why Use Options 138 How Different from Stock 139 Option Tables 140 Some Basics Applied 142 Conclusion 144
CHARTER 9 Options Combinations 145 Covered Call or Buy Write 146 Long a Put or Call 147 Short a Put or Call 147 Long a Put Spread or Call Spread 149 Short a Put Spread or Call Spread ISO Long a Ratio Put or Call Spread 152 Long or Short a Calendar 154 Long or Short a Diagonal 156 Long or Short a Butterfly 158 Long or Short a Straddle 161 Long or Short a Strangle 163 Long or Short an Iron Condor 164 165 Long or Short a Risk Reversal Conclusion 167 PART IV DESIGN AND EXECUTION 169 171 The Elements of Design 171 The Elements ix 174 Position Sizing and Stop Losses n Conclusion 179 z —i m Z 181 Trading Plan H What to Look For 181 Conclusion 198 Execution and Beyond 199 Execution 199 Hedging, Profit Taking, and Adjustments 203 Conclusion 209 Conclusion 211 Additional Resources 213 Aboutthe Companion Website 215 Ab out the Author 217 Index 219
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