Every trader has their own mindset on the stock market, and trading in the zone represents the strategic areas of traders striving to make informed decisions for optimizing their trade position. It requires the understanding of market principles, technical indicators, and risk management. Fear of a person is the major problem while trading in the stock market. New traders face more fear or regret compared to experienced traders. Risk management is a key skill for a trader in the market. Every trade is associated with risk, and one should accept it before entering the market. Fear of losing money makes a trader actually lose money and sell the asset prematurely.
Concept of trading in the zone
The trading zone is the gap between the support and resistance zones. Alternatively, it can be defined as a band between supply and demand zones. Support and resistance levels are hard to break. Price movement on either side of this support or resistance zone at a particular time is difficult to breach. Buy at the support level and sell at resistance for the best result.
Trade in the zone for option trading
Trading in the zone depends on the market when it is range-bound. In these cases, traders have an idea of normal price movement and hold the belief that support and resistance zones will make the market range-bound. The trader uses stop losses at the breakout price levels. Traders choose a short straddle option strategy or a short strangle option strategy for making a profit.
● Zone of support
At the zone of support, traders buy the stocks at the lowest price. In this demand zone, there used to be a lot of demand for buying the stock because buyers want to purchase the stock before the price rise again, and sellers do not have to do anything except wait. However, if the price breaks the support level, it’s expected to start a bearish trend. Traders choose bear call spreads, bear put spreads, or strip strategies due to bearish sentiment. The synthetic put and bear butterfly spread are also the preferable trading strategies at this level.
● Zone of resistance
Zone of resistance indicates the highest price of the stock. This is also called a supply zone. The top of this zone is hard to breach, and traders start selling the stock at this highest price level before the price comes down again. Buyers have to wait until the price drops. However, if the price moves up further and breaches the resistance level, it is expected to have a bullish trend. Traders take the bull call spread, bull put spread , bull ratio spread, bull butterfly spread, or bull condor spread as the preferable option trading strategies at this price level.
Final Thoughts
Applying the options trading strategy contains risk, and before entering the market, one must understand the pattern, technical indicator, price movement, and risk management. Learn the trading strategies from Get Together Finance and know how to effectively apply them in the current market to gain profit and minimize the potential loss.