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How To Read The Stock Market For Stock Option Trading Profits

I will reveal to you in this article four critical price patterns that will show the clues to explosive moves in a potential high-flying stock. I will also show you how to use these price patterns to know which stock to combine stock option trading techniques with for huge profits. There are four price patterns in a stock's price action that reveal clues to a big move which are gaps in price action, laps in price action, strong closes in price, and the angle of the stock's trend.

A gap in price happens when a stock opens higher than the prior day's high. When a stock gaps higher than the previous day's high in the direction of the prevailing trend it reveals a strong demand for the stock as investors start bidding up the price of the stock before the market opens for trading. And when the lows of the gap are even higher than the previous day's high it shows even more demand and reveals an even greater strength in the direction of the prevailing trend to the upside.

A lap occurs when a stock opens greater than the previous day's close but less than the prior day's high. While not as strong as a gap, a lap in the direction of a uptrend lets the alert trader know that there is momentum to the upside that can be exploited with a solid stock option trading strategy. A skilled option trader can also watch for consecutive laps that take place within a given time frame to gauge the strength of an impending move.

Thrusts, or wide-range bars as they are sometimes called, show a skilled trader the strength of potential explosive move. Wide-range bars are almost or greater than the prior five day's price action. They show large amount of buyers that are bidding up the price of a given stock which can show the beginning of a huge bull run. These types of price patterns are often seen in base breakouts when institutional traders begin buying huge blocks of stocks.

The slope of the stock's trend is the angle of the price action itself. The slope of the trend can reveal alot about the health of the trend as well as the momentum of the trend. If the trend of the stock is at 90 degrees, give or take, during a bull run then that trend could be considered health even during bried pullbacks which can be profits from with stock option trading. But, if the trend's slope is at 45 degrees or higher it can reveal an acceleration in the price trend which can still be profited by with call option strategies but the risk of a crash is higher at some point which must be taken into consideration.

When using your system for selecting stocks to combine with stock option trading be sure to look for these price action clues within a stock's price action. If you spot four to six of these price patterns within a 3 week period while a stock is in a slight decline from its high or in a price base it can reveal that the stock may take off on a huge bull run. It can be invaluable in helping you determine which trade to take between two similar companies if one stock reveals some of these clues and the other one does not.

Article Source: http://www.article-voip.com

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