Top 5 Best Indicators for Options Trading to Improve Accuracy

Options trading is both the most thrilling and the most dangerous aspect of the stock market all at once. The allure of quick cash draws in many newcomers, and options in the market, but those with no systems in place end up losing a lot of money.

Communicating with no system and no indicators on an options trading platform is the same as driving at night with no headlights on. In this blog, we are going to introduce and expound on the best indicators for options trading so that you can break the system and use these tools to your advantage. This blog is meant for beginners, but is aimed at traders in options trading in India.

Importance of Indicators in Options Trading

Options are riskier than any other type around, as they are time-sensitive. To avoid losing money, a trader can place a bet on a market turn at the right time, but a market turn in their favour with bad timing can cause a loss.

Indicators help traders:

• Establish trending direction for movement
• Determine accurate timing for entering and exiting trades.
• Prevent losing control of the trading cycle.
• Enhance the probability of a successful withdrawal.

Using the right options trading indicators helps to ensure that anything but an emotional decision is made, which is the essence of discipline.

 

 

Important Rule Before Using Indicators

No indicator gives 100% accuracy, and no indicator predicts the future. Indicators can help you read market behaviour but should always be combined with:

1. - Price action.
2. - Support and resistance.
3. - Risk management
   
   

RSI - Relative Strength Index

Among the numerous options is the RSI indicator to help with options trading.

What is the Relative Strength Index

The RSI indicator is one of the momentum oscillators and is able to inform the trader if the market is overbought, oversold, or neutral.

The RSI ranges from 0 to 100.

RSI Levels Explained

• RSI levels of 70 and above indicate the market is overbought and a reversal is likely.
• RSI levels of 30 and below indicate the market is oversold and is likely to bounce.
• 40 to 60 is the neutral zone.
  
  

How to Use RSI

You can use RSI's overbought and oversold levels to buy:

• A call option should be bought when the RSI is below 30, rises above 40 and the market is in a bullish price structure.
• A put option should be bought when the RSI is above 70, falls below 60 and the market is in a bearish price structure.
• The RSI indicator is extremely useful in providing momentum as a pair to any options trading strategy.
  
  

Why RSI Works Well in Options

Provides Early Signals- Indicators in technical analysis should always provide early signal changes rather than lagging.

Avoid Buying and Selling at Extreme Prices- Indicators should avoid extremes while preserving the direction of the market, and RSI does just that!

Gives You a Good Picture for the Trading Day- Considering all the above, RSI works exceptionally well for day trading scenarios and even longer time frames.

MACD Trend + Momentum Indicator- An equally awesome tool within the Options world is MACD. 

What is MACD?

MACD reflects the following all-in-one tool:

• What direction is the trend going in?
• How strong is the momentum?
• Are any reversals happening?

This one indicator works like magic with:

• MACD Line.
• Signal Line.
• Histogram.
  
  

How MACD is Used in Options Trading

Bullish Signals- MACD Line crosses above the Signal Line.

Histogram changes- Histogram is in the positive range. All behaviour above is sustained for a trend.

Bearish Signals- MACD Line crosses below the Signal Line.

Histogram changes- Histogram is in the negative range. All behaviour above is sustained for a trend.

MACD Options Strategy (Simple to Implement)

Call Option- Heavy MACD bullish crossover. The market is above a strong support level

Put Option- Strong MACD bearish crossover. The market is below a strong resistance level. Trending markets where MACD shines best.

Why MACD is one of the best indicators for options trading

• It limits the occurrence of false movements.
• It confirms the direction of the trend.
• It helps in reducing overtrading.

 

 

VWAP – Institutional Level Indicator (Intraday Favourite)

For intraday traders, VWAP is a must-have indicator.

What is VWAP?

VWAP stands for Volume Weighted Average Price. VWAP shows the typical price activity of traders.

VWAP Logic Behind Trading Dashboards

• Price above VWAP → Positive price action expected.
• Price below VWAP → Negative price action expected.

VWAP will continue to offer support or resistance to price movement.

Strategies to Trade VWAP on Options

Buying an Options Call:

• Price remains above VWAP.
• Price action retraces to VWAP.
• Bullish candle(s) close to confirm VWAP support.

Buying an Options Put:

• Price remains below VWAP.
• Price action retraces to VWAP and shows resistance.
• Bullish candle closes and gets rejected near VWAP.
  
  

Why Traders Use It

• Widely accepted amongst traders.
• Ideal for day-trading options.
• Optimises timing of trades.
  
  

Supertrend – The Easiest to Use

The Supertrend Indicator may be the simplest indicator to read in options trading.

Explaining Supertrend

Supertrend is a trend-following indicator that:

• Turns green when the price is in an increasing trend.
• Turns red when the price is in a decreasing trend.
• This indicator is built on the ATR (Average True Range).
  
  

Common Supertrend Setting

ATR Period: 10

Multiplier: 3

This is a common setting for an intraday trading indicator because it is both reactive and stable.

Supertrend Options Trading Strategy

Buy Call Options When: 

- Supertrend indicator is green.

- Price is located above the green Supertrend indicator line.

Buy Put Options When: 

- Supertrend indicator is red.

- Price is below the red Supertrend indicator line.

Supertrend Advantages Over Other Trading Indicators

- Clear Buy/Sell signals long before other indicators.

- Supertrend is beginner-friendly.

- Supertrend captures the full length of bullish and bearish market cycles.

Open Interest (OI) - Unique To Options Trading Indicator

Open interest is one of the few indicators that is unique to derivatives.

 

 

Open Interest (OI) Definition 

Open Interest measures the total number of outstanding contracts and shows: 

- Where the big whales of the market are positioned

- Market support and resistance levels.

How Open Interest (OI) Helps Options Traders

- High Call OI (Open Interest) indicates Resistance.

- High Put OI gives you the level of support.

- When OI builds up at a specific level with a rising price, Open Interest signals a strong trend.

Application Of Open Interest In Options Trading - India 

Example:  

- NIFTY 22,000 Call shows the highest OI (Open Interest) level. = Significant resistance at that level.

- NIFTY 21,800 Put shows the highest OI level. = Significant support at that level.

This prevents traders from buying options at inappropriate price levels.

Indicators To Use For Options Trading

With anything, one indicator is not sufficient. Use combinations of indicators that align to have a complete view of the market.

Best Combination for Beginners  

RSI + Supertrend.  

VWAP + Price Action.  

Best Combination for Advanced Traders  

• MACD + RSI + VWAP.  
• OI + Support/Resistance.
• These combinations of indicators improve accuracy and give a lower chance of false signals.  
  
  

Common Mistakes Traders Make With Indicators  

Avoid these errors:  

• Too Many Indicators.  
• Blindly Trusting Indicators.
• Ignoring the Overall Market Trend.  
• No Stop Loss.  
• Chasing Price Action.  

Remember that indicators are used to assist in making decisions; they shouldn't be used to do all the thinking for you.  

Options Trading Tips India

• Trade the liquid options (Nifty, Banknifty).  
• No weekly expiry greed.  
• Fixed risk per trade.  
• Stick with one strategy.  
• Learn the strategy before scaling up.  
• These tips on options trading in India can help you avoid big losses.  
  
  

Are Indicators Enough to Make Profits?  

No. They must be used in combination with good risk management, good position sizing, good market structure and discipline. The most profitable traders do not rely on indicators. They rely on the overall process.

What Indicator Works Best for You?  

Trader Type	Best Indicator
Beginner	Supertrend, RSI
Intraday Trader	VWAP, RSI
Trend Trader	MACD, Supertrend
Options Seller	Open Interest
Scalper	RSI + VWAP

Choose these according to what fits your trading style the most.  

Best Indicators for Options Trading  

There is no individual best indicator. The best options trading indicators are the ones you -  

• Understand   
• Use consistently  
• Combine with discipline  

When used properly, RSI, MACD, VWAP, Supertrend and Open Interest are some of the greatest options trading indicators.  

 

 

Conclusion

Managing risk is paramount because options trading is high risk, but trading with the right tools can help you manage those risks. This guide details:  

• RSI for options. 
• MACD options strategy. 
• VWAP, Supertrend and Open Interest.  
• Practical options trading tips India. 

When you focus on learning, discipline and execution, risk management through options trading indicators can significantly improve your success rate. Systems and discipline make profitable traders. Not indicators. Indicators are not shortcuts. Use them for support.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.