SOME KEY POINTERS ON OPTION CHAIN: 1. The first and foremost rule is we need to check OPTION CHAIN on DAILY basis. The prime problem with most of us is we wake up one fine morning and start analyzing by using the "STANDARD RULE" and apply the following logic
PRICE ↓ OI ↓ - Long Liquidation
Price ↑ OI ↑ - Long Buildup
Price ↑ OI ↓ - Short Covering
Price ↓ OI ↑ - Short Buildup
In short most of us consider these logic as "RULE OF THUMB" but actually they are not because these STANDARD RULES work when NEW POSITIONS ARE DEVELOPED
So the bottom line of POINT-1
- Make an habit of daily tracking OPTION CHAIN
-Apply STANDARD RULES when NEW POSITIONS ARE DEVELOPED and NOT when OLD/PRIOR POSITIONS are changed or played with
2. Whenever we are tracking NIFTY/BANK NIFTY OPTION CHAIN always start deducing from MONTHLY OPTION CHAIN followed by WEEKLY OPTION CHAIN where most of do a mistake is we ONLY track WEEKLY OPTION CHAIN and that's where chances of errors increases
So the bottom line of POINT -2
Track NIFTY/BANK NIFTY OPTION CHAIN in following manner:
"MONTHLY>>WEEKLY"
3. When you are tracking "STOCK/INDEX OPTION CHAIN" try to ensure that you are paying keen attention to:
- ATM CONTRACTS
-Highest OI
-Highest Change in OI
So the bottom line of POINT-3
Keep a track of ATM CONTRACTS>>Highest OI>>Highest Change in OI
You can couple the above mentioned ideas with "MARKET PARTICIPANTS DATA"
Hopefully above mentioned ideas will help you to decode OPTION CHAIN in much better manner in future
If it does and if you feel this was something "WORTH READING" .. PLEASE "RETWEET"
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LEARNING POST
[Refining your ENTRIES based on MARKET STRUCTURE]
In this post I will make an attempt to share a simple but effective way of getting into TRADE with LOW RISK
If you find it interesting feel free to "RT"
So let's get started
Most of the time when we want to trade LONG we generally look for a classical pattern of UPTREND i.e. HIGHER HIGH - HIGHER LOW which is the first confirmation to trade LONGS
(See the image for better understanding)
Secondly what we look for is we wait for the price to retrace to the zone where it prior faced RESISTANCE and now it will be acting as SUPPORT and from thereon we will initiate LONG based on the concept of ROLE REVERSAL / CHANGE OF POLARITY
Let's discuss about PRICE ACTION PATTERN which gets repeated again and again but that FEAR OF MISSING OUT (FOMO) over rides and people do wrong trade
In this post I will try to explain about human mindset when PRICE starts moving higher/lower
If you find this interesting
"RT"
See in this image you are able to see that price is moving higher from a zone which is marked with horizontal boundaries and from there price moves up without looking back
Let say in this manner that if this much PRICE ACTION is present in front of you where you will take a trade
Accordingly there will be two categories of traders 1. Those who will try to take trade at CMP 2. Those who are waiting for PRICE to retrace back to POINT-A and then take a trade
You know why people will be ready to take trade at CMP because of one simple reason "CONFIDENCE"
1. COMPARISION OF NIFTY PCR(CURRENT EXPIRY) W/ IV
a. According to the data plotted above it being observed that PCR is constantly under falling zone it was getting stuck towards the zone of 1.3 - 1.0 and it fell below 1 today ~0.8 which means OI of CALLS>OI of PUTS
b. Seeing the IV data of NIFTY its being observed that when PCR is constantly falling, IV is setting the higher tones which very conclusive to say that "SHORT COVERING" on PUTS is bringing more pain to INDEX and if this SHORT COVERING continues INDEX will fall further down