Should you Use 1 Indicator for Option Trading?

When I first started trading, I use to only use one indicator to base my trade off of it–and oh boy, was that a mistake.

Story time…

I used to only use the RSI indicator since it’s one of the most popular indicators in the trading community–so I believed it to be one of the best indicator for option trading.

The RSI is a momentum indicator. It can let you know when a stock has been over bought or oversold.

My only strategy was to buy calls when the stock was oversold, and buy puts when the stock was overbought.

The problem with that trading strategy is that if a stock is oversold or overbought, it can remain in that momentum for weeks or months!

A good example of a stock $UPST from August to October of 2021.

The Best Solution: Use Multiple Indicators

As an option trader you want the whole story of a stock price movement, and you can do that by using a handful of indicators such as EMA and VWAP, Support and Resistance levels, and looking at multiple timeframes.

You want to make sure that all the indicators you’re looking at line up in the trend your seeking for the stock to move.

Here’s a list of some of the best indicators for option and stock trading, “7 Best Indicators and Tools in 2023 for Day Trading S&P 500“.