Open High Open Low Strategy: Steps to Execute the Strategy

Open High Open Low Strategy: Introduction

The stock market is a conglomeration of varied investing opportunities. Some traders believe in parking their money to yield long-term profits while some believe that the real thrill of investing is effectuated by intra-day trading. 

Intra-day traders book gains by buying and selling securities on the same day. While it sounds appealing, it is certainly not everyone’s cup of tea. Mostly those traders with a high-risk appetite can sustain the highs and lows that intra-trading brings with itself.

Intra-day traders use analytical charts, tools, and ideally an investment strategy. One such strategy is the open high low strategy. If you are an intraday investor, this InDmoney article shall help you understand the nitty-gritty of this strategy and use it to the best of your advantage

What is Open High Open Low Strategy?

Open high low strategy (OHL) is popularly used by short-term traders and has been derived from the name Open dive. It is a widely-adopted technique that is used to filter out stocks or indices that have the open market price equal to the highest price in the 15-minute slot or open market price that stands at low in that time frame, as the case may be. This strategy implies that if open equal to high, the investor should go short i.e. take a buy call and when open equal to low, one should go long in that stock/indices i.e. signifying a selling opportunity.

In this OHL strategy, a trader looks at the pre-market levels. Along with it, it is also important for the trader to mark previous days’ opening and closing levels. He must also make a note of the stop-loss levels. 

The risk-reward ratio of this strategy is certainly high. However, this OHL strategy in practice is not as simple as it may appear to be. An investor needs to apply his due diligence and not blindly invest just based on the appealing market trends. It is ideally recommended for a trader to start with a low investment to gauge the working of the strategy. The traders should know when to book the profit and get out of the position as soon as the target has been achieved.

Salient Features of Open High Low Strategy

High risk-reward ratio

As already mentioned, the risk-reward ratio of this open high low close formula is exorbitant. This happens because, when intraday traders use this trading method, they tend to set Stop Loss around the strike price. This implies that if the opening price of a stock is higher, the stop loss tends to be set at a high of the first 15-minute candlestick.

Analysis of long-term stock charts

It is advised by the experts that to follow the open high low strategy, an intraday investor must analyze the long-term stock charts. Although the investor is trading the stocks on the same day, he cannot trade against a stock’s market trend, that might be unchancy. Therefore, the trader needs to analyze the daily/weekly charts and ensure that he buys or sells shares based on the same.

Using an open high low scrip scanner

The open high low strategy allows a trader to make some efficient decisions. They can analyze a stock’s trend with distinct accuracy. Generally, traders add specific scrips to their watchlist and discipline when to invest in them. These evaluations work out best to identify some of the best sectors to invest in.

Steps to execute open high low strategy

To establish a fruit-bearing strategy, it is important for an investor to work with dedication as well as discipline. Some traders try to aim with a blind eye, which may work one or twice. But to earn substantial profits, it is important that you have full-proof plans and a strong market regime that you should keep your eye on. 

To execute a successful, an intra-day trader can reconnoiter the following steps:

• First of all, he must sign in with his login credentials to the trading account. 
• An investor must make it certain that he has an adequate balance for trading.
• Next, he must prepare a watchlist of scripts by surveying the different options on the broker app or even through the web.
• He must create a vital watchlist by 9:15 am so that he has sufficient 15 minutes before the Indian stock market opens.
• Once the watchlist is on point, the trader must take note of the open, lows, highs as well as pivot levels of the previous day. This information can easily be obtained on the brokerage platform.
• The next step is crucial, the trader then needs to keep an eye on the movement of the selected stock prices. The fluctuation can be based on the industry news or even the open interest in derivatives securities. These must be done by 9:45 am. Apart from this, the trader can make use of the analytical charts for recording the changes.
• The trader can enter the trade for a long position/short position at 9:45 a.m. When the market opens, he must wait for the price to cross the previous day’s high/low. After the record is broken, he must check if the value of the stock is the same as open and low or open and high. If it is open and low, then he must take a long position, setting the stop loss at the current trading day’s low price. However, he must enter short if the opening price and the day’s high are equal.
• Once he establishes his intraday open high low strategy, he must exit the trade. This can be done at the agreed-upon stop loss or at the end of the trading day.

The following table is an illustration of the open high low strategy and how an investor can achieve his target. However, the following is only for the explanation purpose and must be construed accordingly. 

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns
 

Expert Suggestions:

Based on some evaluations, some experts have suggested the following tips for the open high low strategy traders. 

• The OHLS traders may take long or short positions after a range breakout. This helps them to study the market trends.
• The OHL strategy is one of the easiest techniques in the rules of trade, therefore it is recommended for beginner-level investors to utilize it to increase their chances to earn profit via intra-day trading.
• It is advised to the traders to trade in those stocks that have high volume. This is so because it has been seen that stocks with high volume generally increase the confidence of the trader and also decrease the volatility of the stock. 
• Traders may consider taking the trade only if the second candle opens higher than the first candle. 
• The optimal risk-reward ratio is considered to be a minimum of 1:2. To take a long position, the immediate support level must be kept at the stop loss. Alternatively, immediate resistance may be kept at Stop loss in case of a short position.
• It should also be noted that if you go for a short position, then the price must be below the volume-weighted average price.

Important things to remember:

1. Do Not Blindly Follow Hot Tips

No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 

2. Eliminate Loser Stocks from Portfolio 

There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 

3. Don't Exceed Your Investment Budget Abruptly 

While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares. 

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns