What is the Open High Low in Intraday Strategy?
The most thrilling yet demanding kind of share market trading is intraday trading. Intraday traders try to earn profits by buying and selling positions within the same day. They rely on various tools, such as analytical charts and patterns, to book gains from their trades. Moreover, they use charts and tools to measure the performance of their scripts.
Often, intraday traders also depend on an intraday strategy. For example, the open high low strategy is one of the most popular trading strategies.
In this blog, let us understand more about this strategy, its features, and its execution.
What is the Intraday Open High Low Strategy?
The open high low strategy generates a buy signal for intraday traders when the value of a stock is the same for open and low. It indicates that the trader must buy the stock. On the other hand, the strategy generates a sell signal when the stock has an identical value for open as well as high. It is an indication for the trader to sell the stock.
Also Read: Steps on How to Buy & Sell the Stocks?
Characteristics of Open High Low Strategy
- High risk-reward ratio
When intraday traders use this trading method, they set stop loss around the strike price. Thus, the risk-reward ratio in the open high low strategy is generally high. If the opening price of a stock is higher, the stop loss is set at a high of the opening 15-minute candlestick.
Also Read: What is long wick Candlestick Pattern?
- Study long-term stock charts
To follow the open high low strategy, intraday traders must study long-term stock charts. Although you are trading your scripts on the same day, experts suggest not to trade against a stock’s trend. Therefore, you must analyse the daily/weekly charts to ensure that you buy or sell shares based on the trend of a stock.
- Assess a stock’s trend using scanners
The open high low strategy allows a trader to evaluate a stock’s trend with more accuracy. As a result, traders can make more efficient investment decisions. Traders can add specific stocks to their watchlist and determine when to invest in them. Such an evaluation helps to select the best sector for investments.
How to Execute the Open High Low Strategy?
The share market opens close to 9:30 am. Therefore, an intraday trader must be ready to enter the trades a little before market opening. At 9:15 am, you must log in to your trading platform and prepare yourself for executing the intraday strategy.
Here are the steps that you need to follow:
- Use the login credentials to sign in to your trading account. Make sure you have an adequate balance for trading.
- Next, prepare a watchlist of stocks by looking at the different options on the web or the app. You should create your watchlist latest by 9:15 am so that you have 15 minutes before the opening of the market.
- After your watchlist is ready, you must record the lows, highs, and pivot levels of the previous day. It is easy to obtain this information on the brokerage platform.
Also Read: How to use Pivot point in Intraday Trading?
- Keep an eye on the movement of your script prices based on changes in industry news or open interest in derivatives security. You must do so till around 9:45 am. Besides, you can use the analytical charts for observing changes.
- At 9:45 am, you can enter the trade for a long position. As the market opens, wait for the price to cross the previous day’s high. After it is broken, check if the value of the stock is the same for open and low. If yes, you can take a long position, setting the stop loss at the current trading day’s low price.
- Even if you wish to go short at 9:45 am, you can execute the open high low strategy. Here, you must record the low price of the previous day before 9:15 am. Then, when the market opens, you should watch till the price breaks out of the previous day’s low.Once that is done, check if the opening price and the day’s high are equal. If yes, you can enter short, setting the current trading day’s high price as the stop loss.
- Now that you have used the intraday open high low strategy to your benefit, you can decide to exit the trade. You can do so at the agreed-upon stop loss or the end of the trading day.
Also Read: 3 Important Exit Strategies for Intraday Trading
The Open High Low Scan helps to process Nifty scripts and identify those that have open = high or open = low.
To Sum it Up
One of the most favoured intraday trading strategies followed by experienced traders is the open high low strategy. But if you are just beginning to trade, you should opt for advisory services before executing any trading strategies.
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Frequently Asked Questions
The trend of the market becomes clear half an hour after the market opens. It is, therefore, the best time to invest.
One of the best reference points for intraday trading is the tick charts. During a big trade, the bar is updated regularly. The tick chart provides more valuable insights than any other graph during high-volume trades.
Generally, you can go on the buy-side when the Nifty50 index is more than 0.25%. Similarly, you can go on the sell-side when the index is below 0.25%. But some people prefer to set the criteria at 0.5%.
You should wait for 30 minutes after the market opens at 9:15 am. You can go ahead to follow the initial strategy if the high/low stays as estimated.
When the market opens, use the stock scanner. Set the criteria to find stocks that are open = low and open = high. Add these to the watchlist to find your open high low stocks.