I want to build a strategy for CALL Option for banknifty with the following indicaters
1 should be above simple moving average
2 Should be above MACD > 10 and below 80
3 Should be above PSAR
4 RSI above 30 and below 80
5 Above Supertrend
Kindly help me
Indicators like SMA, MACD, and RSI were developed in the era of equities trading, focusing on daily or weekly timeframes to capture the slower, longer-term market trends. At that time, the markets weren’t as volatile, and they moved based on relatively slower cycles, which these indicators could capture more effectively.
Options, especially short-term ones like Bank Nifty’s weekly options, are sensitive to rapid price movements and implied volatility changes. These indicators lack the sensitivity to capture intraday shifts that are crucial for options, making them lagging indicators in this context.
Bank Nifty’s options can exhibit extreme price swings within minutes. Indicators designed for higher timeframes or directional trends (e.g., MACD or Supertrend) respond too slowly to be useful here. By the time these indicators confirm a trend, it’s often too late, as the price could reverse due to news, economic reports, or other volatility factors.
Additionally, option prices are influenced not just by the underlying movement but by time decay and implied volatility, neither of which these indicators account for.
Indicators like SMA and MACD use historical price data, so they “lag” behind real-time price action. Options trading often requires quick decision-making to capitalize on short, sharp movements, especially in instruments like Bank Nifty where moves happen within minutes.
MACD crossing signals, for instance, may only appear once a substantial trend has developed, which could mean entering a CALL option after much of the move has already occurred, leading to paying a premium just as the move exhausts itself.
PSAR and Supertrend can be effective in longer-term trend following but struggle in choppy markets. Options traders, especially on weekly options, are more likely to face whipsaw movements due to intraday volatility. Relying on these indicators may cause traders to get caught in “false breakouts,” where the signal suggests a trend that quickly reverses, leading to losses.
When trading options, especially with strategies like scalping or intraday positions, traders need indicators that react to rapid changes and help them exit before price reversals—something these indicators aren’t suited for.
RSI is traditionally used to identify overbought or oversold conditions on longer timeframes, but in options, especially on highly volatile assets, it can reach these levels quickly without any meaningful retracement.
In options trading, RSI may signal overbought conditions, but because options decay over time, waiting for RSI to exit this condition may lead to premium erosion rather than profitable trades.
When these indicators were developed, options were either non-existent or a minor part of the market landscape. Today’s markets are influenced by algorithmic trading, HFTs, and derivatives, making it difficult for these lagging indicators to capture the true dynamics affecting options prices.
Factors like implied volatility and gamma effects (rate of change of delta with respect to the underlying price) play significant roles in options pricing but aren’t accounted for by traditional indicators, rendering them less effective or even misleading for modern options trading.