There are many ways of trading the financial instrument in the world. But in order to make a consistent profit out of trading the financial instrument one must follow a definite guideline. In the eyes of expert option traders, wave trading is considered to be one of the most profitable options trading strategies in the world. In order to master the art of wave trading, you must know how to identify the trend reversal in any currency pair. The proper knowledge of support and resistance level is also required for the perfect execution of this trading strategy. Professional traders use the exponential moving average in order to identify the trend reversal in the currency pairs.
Let’s see how the professional traders use the wave trading strategy in their call option order.
The basic principle of wave theory is actually pretty simple. But before we go to the wave theory lets learn how to identify the bullish reversal in any currency pair. In the above figure, the blue line is the 8 day EMA and the yellow line is the 21 day EMA. When the blue line crosses above the 21 days EMA it is considered to be the bullish reversal signal in the currency pair. So traders basically look for the bullish crossover in the 21 and 8 days EMA for their call option setup. Followed by the bullish reversal the market should make nice higher high associated with higher lows. The 1,2,3,4 and 5 are the point’s where the market made higher highs associated with higher lows. In the above figure, the point 5 is the previous resistance zone where the market falls sharply towards the point 3.So point 5 is now the support level for the price. When the price hit the support level near the point 5 traders wait for the bullish move in the price above the EMAs. In the above figure, the price eventually headed north breaching the EMA, indicating a strong bullish move in the pair. The blue shaded region is the place where the traders executed their call option trade. Always remember that before you execute your call option order in the market, the price must stay above the blue line. And never go for any put option order until there is bearish crossover in the EMA. To be precise, execute your call order once the market establishes nice bullish trend in the market and make sure that you are opening your order with proper risk management factors.