Option Trading Concepts to Help You Build a Solid Foundation

14. Emotional Unpredictability

Movement and rhythm are part of life. So it's only natural that market forecasters and analysts typically use technical analysis in the form of historical price behavior and cycles when trying to anticipate future market moves.

Unfortunately, such efforts are "hit-and-miss" because they assume markets will display predictable patterns when, in fact, markets are unpredictable and prone to discontinuities in movement. Such methods lose sight of the fact that markets are driven by emotions. The only predictable aspects about human emotions are that they vacillate between extremes and gravitate to a mean level.

Option implied volatility is a pure measure of emotion and that's why The Weekly Trading Report always looks at the level and trend of implied volatility when establishing positions.

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