The decision to enter into the universe of Option Trading is an important one: these days, investors have a vast array of information in regards to options available so they can make informed decisions. Indicators, commentaries from Wall Street professionals as well as market indicators are available to the average investor. Still, like the game of Craps, the down-side is that stock options trading can be complex and unpredictable, so investors should tread lightly when considering advice or indicators when investment decisions are made.

In option trading, the average investor will use technical analysis in trying to make the determination as to whether or not the price of a stock will go above or below the strike price for their call or put. Technical analysis involves the using only past performance data in various charts to make the analytical determinations of what the future price moves of a stock are. Often, technical analysis provides positive results for a host of reasons, but is often unreliable.

Attempting to nail down stock price moves founded upon the technical analysis of averages, volume changes and other indicators can be tricky due to the characteristic rise and fall of the market. In option trading, any facet of the technical analysis is principally a guessing game as the definitions get foggier for the reason that present and future events are not calculated into the analysis.

As an alternative, many investors turn to the use of other indicators and indicator-based analysis tools when making some determinations in the option markets. As indicators take a more diagnostic view of the market, often working to both take analysis of the market as well as provide some guidance for the future movement of the market, they can provide a much better means of analyzing future trends as they consider both the past and the future in their diagnostics.

Of these tools for option trading investors, the most useful is the MACD indicator. MACD stands for Moving Average Convergence and Divergence, and is an indicator of a company's 50 day moving average as compared to their 200 day moving average, with an analysis taken of the difference between them. Today this tool is used mainly for observation purposes, but it was used in the past as a much stronger tool for analysis.

After using it enough it was found that the MACD indicator was actually counterproductive to option trading because it suggested that one buy before prices dropped or selling before they rose. This event is now known as whipsaw and many technically based tools are prone to produce this result. Now this tool is usually just used to gauge how the market is doing and is not used as a hard and fast rule of what action should be taken.

Investors today are bombarded with analytical tools for the evaluation of stocks. Stock options trading is founded upon using these different analysis devices to determine if a stock will rise or fall in the future. Stock trading relies on the use these tools which track the moving averages of stocks. Option trading attempts to foresee a rise of fall in a stock price at a future time, and the "whipsaw" effect of the MACD indicator makes it a less than reliable source of analysis. This indicator should be used only for the evaluation of trading strategies.