Posted by forex at 6:39 AM
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1. Go to a free price charting website, like FreeStockCharts.com, and click on the 'New Chart' button. A pop-up appears with a new price chart. Enter 'OEX' for the symbol, which represents the S&P 100.
2. Go to the indicator button on the price chart, and select the 40-day moving average. This represents the last eight weeks of price action on the S&P 100. For this weekly trade setup, the 40-day moving average has to be sloping upward with price action trading above the moving average.
3. Select the Slow Stochastic indicator, which should appear at the bottom of the screen, right below the S&P 100's price action. The Slow Stochastic measures oversold and overbought conditions; if the indicator is above 80, it's overbought, if it's below 20, it's oversold. This indicator has two lines: the K% and the D%.
4. Prepare to buy an S&P 100 call option when the 40-day moving average is sloping upward and price declines, which causes the Slow Stochastic indicator to go into an oversold condition. When the K% line crosses up through the D% line, that's your signal to buy the call option.
5. Exit the position five days later or when the Slow Stochastic indicator gives off an overbought reading.