The Straddle Option and 4 Other Helpful Market Indicators

When you're ready to invest in the stock market, it's important to learn at least a little bit about stock trading. The more knowledge you have, the better you're able to make investment decisions that make the most sense for your financial situation and, hopefully, help you realize personal success. Here we explore market indicators and explain more about straddle options.

What Are Market Indicators?

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Traders like to use market indicators to help them strategize which stocks they should invest in. Market indicators are forecasts for how the stock market is projected to move based on trends and signals. Market indicators are calculated with formulas and ratios with the goal of providing investors with more knowledge about the stock market and the ability to make the right purchasing decisions based on data.

How Straddle Options Work

If you've been wondering what a straddle option is, look no further. The straddle option is when you purchase both a call and a put option in the same stock with the same strike price and expiration date. This option is great in a market with volatility because as long as the stock moves away from the strike price, the call and put options will increase in value, making you money in the process.

What makes straddle options different is that even if a stock moves up or down, you'll still make money. What you're looking at more is how sharply the stock moves from the strike price. This will be the greatest indicator of your investment success. When you purchase a straddle option, you are saying that you believe that stock will move more than the market indicators say it will.

Helpful Market Indicators to Know

There are a number of market indicators that would be helpful to watch so you can have a better idea of the best time to invest. You never want to go into trades blind. It's always better to have at least some idea of what you may expect. Here are some to know:

• Advance-Decline Line: This line shows the difference between the number of stocks that went up in a day and the number that went down. Over time, you should be able to see if stocks are up or down, and know how healthy the market is.

• Relative Strength Index (RSI): RSI measures market conditions and can clue you in to instability in the market that can affect stock prices. RSI can show if any stocks are overbought or oversold, which can affect its maturity and value.

• Moving Average (MA): A moving average helps identify an asset's pricing direction through data points. This provides you with a pattern that you can use to assume how the future of that asset will look.

• Standard Deviation: This indicator clues a trader into price moves so he or she can see how volatility may impact the asset's price. Standard deviation looks at both current and historical price movements of a stock, with the idea that big and small price moves rotate.

Getting started in the stock market doesn't have to be confusing. It can be simple with basic knowledge like what options you have and the market indicators you can watch so you can buy and sell when the time is right.