Options Trading System

Nasdaq 100 Trading System

Many traders trade stocks without thinking about index analysis and they are confused when the question comes to the indexes analysis. One of the simple questions could be, "Why should I pay attention to the NASDAQ 100 index if I interested only in the Microsoft stocks (MSFT)?" or "Why should I analyze the S&P 500 index if I trade BAC stock (Bank of America)?" The answer on such questions is very simple. The market indexes reflect the general sentiment of the market sector they cover as well as some indexes reflects the entire stock market sentiment and index technical analysis helps to see the possible future trends of the market sectors and future market trend. It is quite logical that access to such information could valuable tool for a stock trader.

An ability to see of the general direction of the stock market that can be received only from the analysis of the market indexes. It could be a powerful tool in the hands of an investor who is looking to improve his/her trading, even if he/she invest into stocks only and does not trade indexes (index tracking securities) at all.

A quite simple trading strategy could be set on the basis of the index analysis which could be applied to trade stocks. As an example, by having the results of the Nasdaq 100 index technical analysis, a trader can make a more informative decision about trading MSFT (Microsoft), AAPL (Apple), GOOG (Google)and other stocks that are listed in the NASDAQ 100 index. Using index technical analysis in any stock trading system can substantially improve the system's liability by reducing the number of lost trades. Below you may see an example of simple rules that could be embedded in to a system used to trade the MSFT stock. These rules are based on a combination of the  MSFT stock and Nasdaq 100 index technical analysis:

When the NASDAQ 100 index analysis results point to a higher odds of an up-trend, then:

1. If MSFT stock analysis predict a bullish movement (the same as the NASDAQ 100 index's direction), a trader may consider buying the stock;
2. If MSFT stock analysis points to a bearish movement (opposite to the NASDAQ 100 index's direction), a trader may consider staying in cash and waiting when index and stock analyses point in the same direction.

When the NASDAQ 100 index analysis results point to a higher odds of a down-trend, then:

1. If MSFT analysis predict a bearish move (the same the NASDAQ 100 index's direction), a trader may think about selling the stock short;
2.  If MSFT analysis points to bullish move (opposite to the NASDAQ 100 index's direction), a trader may think about staying in cash and waiting when index and stock analysis have identical output.

In general, a system combining index and stock analysis could be described as:

• buy stock long only when the results of this stock analysis and the results of an index analysis (in which the stock is listed) show the higher odds of having bullish trend;
• sell a stock short only when the result of this stock analysis and the results of an index analysis (in which the stock is listed) point to the higher odds of having bearish trend.

It is quite logical that each stock trading system should have cover index analysis as well. By knowing the general sentiment in market and market sectors, a trader will not run into a situation when he/she is surprised his/her stocks starts to decline when this stock analysis indicates this stock should be bullish. During the strong bullish markets even a weak stock may increase in its value and during the strong bearish market and market crashes your stock (no matter how bullish it looks like) will probably fall as well.

Access to index-based technical analysis may give an ability to achieve safer trading, may help to avoid uncertain decisions, and may show how much to invest in a trade. Yes, it's more complex to analyze stock and indexes than to focus on stock analysis only, but if it was easy, everyone would be a winner...