Understanding how to trade using key moving averages provides traders with an important tool when looking for trading opportunities. The most widely used moving average periods are the 20, 50 and 200. Moving averages (simple, exponential or smooth) help identify support levels in uptrends and resistance levels in downtrends and can be applied to any chart with any time horizon. In the case of a downtrend, traders can enter a short position on the second period candlestick after the moving average resistance level has been confirmed. A stop-loss should be placed just above the moving average. As long as they are acting as resistance, the downtrend should continue until prices break above the moving averages.
A short risk reversal option strategy can be used when you are bearish on the market and uncertain about volatility. Its risk/reward is the same as a SHORT FUTURES position except that there is a flat period of little to no gain/loss. Profit increases as prices move below the long put strike price. Loss increases as prices rise above the short call strike.
|Trading Symbol||LO G7|
|Trading Symbol||LO G7|
|Trading Symbol||CL G7|
|Contract Expiry||Feb 2017|
As a trend following strategy, substantial downside can be expected. A target of 52.57 is set up by identifying the next most significant support area (52.57 is an overlap between Dec 15th top and December 19th bottom). The position can also remain opened until either the options expire or the price breaks above the declining 50-period moving average (52.65 on December 22nd).
If the price rises above the 50-period moving average, the position is closed with a limited loss.
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