“How to take entries in Options trading?” is the most common question of every beginner in Options trading. It's a valid question since proper entry matters more in Options trading than any other form of trading.
Options trading is highly volatile, and even though you can trade Options in various ways, every beginner needs to work to get the basics right. The right entry plays a huge role in Stop Loss management. In this article, I will clarify how to take entries in Options trading.
How to Take Entries in Options Trading: The Short Answer
The two most common types of entries in Options trading are 1. Traditional entry 2. Ambush entry. In a Traditional entry, you wait for a candle in the direction of the Trend and enter your position at a follow-up candle. In contrast, in an Ambush entry, you enter your position just when the price tests your entry-level, which can be a support or resistance.
How to Take Entries in Options Trading: Trading Setup
It all starts with your trading setup, and there are just so many setups for Options Trading. You can have a single-legged directional strategy or a two-legged strategy. However, whatever trading setup or strategy you choose, you must have perfect clarity and solid reasons behind it.
You can base your trading strategy on price-action, candlestick patterns, or technical indicators. Once you have a trading setup, you can get it more effective by religiously following it and putting a sound money management system in place. What's important to understand is to backtest your setup with both historical and real-time data.
You can backtest your strategy without spending a rupee from your pocket, and it's by paper trading. You can paper trade and backtest your strategy using the Long and Short position tools on the Tradingview charting tool.
Most importantly, once you find a good trading strategy, you must stick to it even if it doesn't work on some days. No strategy will work equally well on all days, and on losing days, your money management system comes into play to save you from making big losses.
How to Take Entries in Options Trading: Timeframe
There is always so much confusion about timeframes among new traders. When building a trading setup, consider making it using higher timeframes and timing your entries on lower timeframes. For example, if you are an Intraday Options trader, you can build your strategy based on a 5m timeframe and plan your entries on a 1m timeframe.
Besides, you must also have an excellent technical analysis in place. For Intraday, you can analyze the chart on 1D and 15m timeframe to see the broader picture of the market. For Swing trading, you can conduct your technical analysis on Weekly, 1D, 4H, and 1H timeframes.
How to Take Entries in Options Trading: Entry Types
It's essential to time your entry well, as it helps keep your Stop Loss small. Your entry shouldn't be early or late as it may lead to an easy Stop Loss hit. The two most popular trading entry types in the Indian Options market are:
- Traditional Entry or Conservative Entry
- Ambush Entry or Aggressive Entry
In a traditional entry, you will wait for the price to start moving with the Trend after a pullback and allow the candle to close. Next, you will wait to enter the position when a follow-up candle forms. For example, if you are trading an uptrend, you will wait for one green candle to close after a pullback.
Next, you will want another green candle to break the previous candle's high as confirmation, and that's when you enter the position. For trading a downtrend, you will wait for a red candle to form first and another red candle to break its low.
An Ambush Entry doesn't wait for a confirmation, which is why many see it as an aggressive type of entry. It solely relies on price levels and Trends. Just when the price takes a pullback to your desired price level, you immediately enter a position in an Ambush entry.
For an Ambush entry, you need to be really confident about your price levels, which, of course, will come from your technical analysis. However, if executed properly, Ambush entries can give you more profits since you get early entries.
How to Take Entries in Options Trading: Avoid Entries without a Pullback
There are times when the market can drive you crazy, and even if it's one of those bad days when you are convinced to overtrade, try not to enter a position without a Stop Loss and a proper pullback. In an uptrend, you must wait for the price to come to a reliable support level for Entries, while in a downtrend, you must wait for the price to touch a reliable resistance level for Entries. Doing this helps you place your Stop Loss behind a technical barrier. On the contrary, when you enter a position without a pullback, you have a bigger chance of losing your Stop Loss really fast.
How to Take Entries in Options Trading: Placing the Order
Placing the actual order accurately is the most challenging part since you must ensure that you put it precisely at your levels, whether it is a Traditional or Ambush entry. For this, you can add your desired contracts to your watchlist and then decide which one you will trade. Next, as you see the price approaching your price levels, you must get ready by opening the contract and preparing for the final swipe.
When the price is at your desired level, you must right way swipe the button to place your order without a second thought. It works faster on Smartphones than on PCs or laptops. However, you need separate application windows or devices to place the order and view the chart. You can do this by using two monitors, a screen split, viewing your chart on your PC or laptop, and using your smartphone to place the order.
If you are starting with Options trading, you must address many crucial aspects and work. Knowing how to take entries in Options trading is essential since none of your trading setups will work without this. In this post, I have provided an in-depth explanation of how to take entries in Options trading. I am sure you have gained good clarity after reading this post.
How to Take Entries in Options Trading: FAQs
What is options trading?
Options trading is a type of financial trading that involves buying and selling contracts called options. These contracts give traders the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time frame.
How do options work?
Options provide flexibility to traders. There are two main types: call options (allowing the purchase of an asset at a set price) and put options (allowing the sale of an asset at a set price). Traders can profit from price movements in the underlying asset without owning the asset itself.
What do I need to start options trading?
To start options trading, you'll need a brokerage account that offers options trading capabilities. Additionally, it's essential to have a solid understanding of basic financial concepts and the options market.
How much capital do I need to start trading options?
The required capital varies based on your trading strategy and risk tolerance. Some strategies can be capital-intensive, while others can be more conservative. It's advisable to start with an amount you're comfortable risking.
How can I manage risk in options trading?
Risk management is crucial. Set stop-loss orders, diversify your trades, and avoid risking a substantial portion of your capital on a single trade. Educate yourself about options and continually monitor your positions.
Is options trading suitable for everyone?
Options trading can be complex and carries a higher level of risk compared to traditional investing. It requires a good understanding of the market, strategy, and risk management. It might not be suitable for everyone, especially those with limited investment experience.
Remember that options trading involves significant risk, and it's crucial to educate yourself thoroughly, practice with virtual trading platforms, and consider seeking advice from financial professionals before committing real capital.