We have already learned about Support and Resistance, how are they formed and how to identify them in AOC. If you have not yet completed that chapter please read it here.
In this chapter we will learn about their types and ways to identify them in terms of Our Option chain theory as used by all AOC users.
Before we continue let me clarify some of the most confused topics and misconception about support and resistance.
If OI, OI Change and Volume if all of them are 100% on a particular strike price does that always make a string Support or Resistance ?
NO, not always it really depends on the situation, we will learn about that in this article.
Can OI Change alone make strong support or resistance?
Yes, It can.
Why do you consider OI Change for support or resistance?
Please read this article chapter 3.
Types of Support and Resistance
In Aoc there are 3 types of support and resistance, which are:
- Strong
- Shifting Towards Top (STT)
- Shifting Towards Bottom (STB)
1. Strong Support or Resistance
A support or resistance at any given strike price as identified by chapter 3 is called strong, if it does not show any tendency to shift either on bottom or top is called STRONG Support or Resistance.
It has following characteristics:
- It can be of all 3 (OI, OI Change and Volume), either two or any one.
- Second highest percentage corresponding to the support or resistance forming data (OI, OI Change and Volume) is less than 75% or
- Even if the percentage is higher than 75% it must be decreasing.
2. STT Support or Resistance
STT or shifting towards top is a support or resistance which is most likely to shift to a higher strike price. In other words the support or the resistance has weakness on the higher strike price or the percentage of (OI, OI Change and Volume) at higher Strike Price is increasing.
It has following characteristics:
- It can be of all 3 (OI, OI Change and Volume), either two or any one.
- Second highest percentage corresponding to the support or resistance forming data (OI, OI Change and Volume) is more than 75% at higher strike price or
- Even if the percentage is lower than 75% it must be increasing.
3. STB Support or Resistance
STB or shifting towards top is a support or resistance which is most likely to shift to a lower strike price. In other words the support or the resistance has weakness on the smaller strike price or the percentage of (OI, OI Change and Volume) at lower Strike Price is increasing.
It has following characteristics:
- It can be of all 3 (OI, OI Change and Volume), either two or any one.
- Second highest percentage corresponding to the support or resistance forming data (OI, OI Change and Volume) is more than 75% at lower strike price or
- Even if the percentage is lower than 75% it must be increasing.
3 Golden Rules/Steps to Identify Strong, STT and STB Support and Resistance
Step 1
Identify Support and Resistance. Read this article chapter 3 to learn how we can find support and resistance.
Step 2
Identify all the yellow boxes (percentage higher tha 75%)
Now assume the yellow box has turned red/green, will that shift our support or resistance?
If the answer is yes, continue to next step else our support or resistance is Strong.
Step 3
If our answer from step 2 was yes then in step 3 will check if our assumption can be right or not ie. a yellow box can only turn red or green if its percentage is increasing.
So if the percentage of yellow box on whose shifting our support or resistance was shifting is increasing the support or resistance will be STT or STB else it will be strong.
In this example OI Change percentage which is 81% and its increasing and that strike price is lower than the current resistance, the resistance is STB.
Variant of STT and STB
Apart from Strong STT and STB support and resistance there are also some variant/exceptions. Lets look at them in brief.
Shifted from Top (SFT)
A support or resistance which has just shifted from top and its percentage is decreasing but the percentage is still more than 85% we call it SFT. SFT indicated bearish momentum in market but until it becomes strong we can not assume safe trade from new support or resistance.
Shifted from Bottom (SFB)
A support or resistance which has just shifted from bottom and its percentage is decreasing but the percentage is still more than 85% we call it SfB. SFB indicated bullish momentum in market but until it becomes strong we can not assume safe trade from new support or resistance.
We will learn in details how we can trade in all these situations in later chapter.
Thanks for tuning in, see you in next chapter until then do like us, share and also provide your valuable feedback via comment.
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