Trading the financial instrument successfully is an extremely difficult task especially if you are new in this industry. Professional options traders are making a huge amount of money consistently and exploring the happiness of financial freedom. But they have not achieved this success in a single day. They spent years in learning and practicing different option trading strategies for making a consistent profit out of trading the financial instrument. Among many different trading strategies, put option channel trading strategy is one of the most profitable option trading strategies that almost all professional options traders use in today’s world.
Let’s see how the professional use the descending channel in their put option trading strategy
The descending channel trading strategies work best when it is traded in favor of the prevailing downtrend. First of all, trained option traders find suitable currency pair with a long-term prevailing downtrend. In the above figure, the experts have drawn a nice descending channel to trade their put option strategy. In order to draw a valid descending channel, we need two connecting points for the channel resistance and two for the channel support. In general, the aggressive put options traders set their strike price near the channel resistance. On the contrary, professional conservative traders wait patiently for bearish price action confirmation signal before they execute their put option in the channel resistance.
In the above figure, two put option trade was executed using price action confirmation signal. In the first time, the put option was executed by trained option traders once the price formed a bearish engulfing pattern right at the channel resistance. The second trade was also executed with bearish pin bar confirmation. To be precise the aggressive traders set their put option strike price just near the channel resistance and they don’t wait for any price action confirmation signal. On the contrary, those who are overly conscious about their trading capital prefer the conservative method and wait for the price action confirmation signal. It’s true that traders can use the call option in the channel support zone but trading against the prevailing long term down trend will increase the percentage of risk. So, for the call option, you must have an ascending channel structure drawn in favor of the long-term bullish trend. This put option strategy is very stable and capable of generating a stable trading result in the long run but it’s imperative that traders use proper risk management factors in order to avoid huge capital loss.