Chapter 5 | Using OI, OIChange Chart to Avoid SL

So far we have covered the following:

1. Chapter 1 | Introduction to AOC
2. Chapter 2 | Settings and Customization in AOC
3. Chapter 3 | Defining Support and Resistance
4. Chapter 4 | Types of Support and Resistance

By completing these topics we now must be comfortable with AOC and must be able to identify support and resistance. Our next topic would be to learn how we can take trade using AOC. Before learning that in this chapter we will be understanding the OI Graphs and how they can help us avoid Stop Losses and make our trading decision safer. There is also an important topic that you must watch/read by Shivam sir where we discuss how to maintain trading discipline and avoid over trading. Avoid Over Trading to Become a Profitable Trader

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How to access the OI graphs ?

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What are the components of OI and how to read them ?

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A. RED LINE (CE)

By default the OI and OI Change of CE is represented by red line in AOC. Simply put if OI or OI Change of CE side is increasing ot a given strike price it means that strike price is bearish. Here the slope of the graph is important for us but not the numbers.

If red line (OI/OI change CE) is rising it means that strike price is bearish. If its flat it means its neutral. If its falling that indicated bullishness.

B. GREEN LINE (PE)

By default the OI and OI Change of PE is represented by GREEN line in AOC. Which means if OI or OI Change of PE side is increasing ot a given strike price, means that the strike price is bullish. Here the slope of the graph is important for us, but not the numbers.

If green line (OI/OI change PE) is rising it means that strike price is bullish. If its flat it means its neutral. If its falling that indicated bearishness.

C. BLUE LINE (PE-CE)

The blue line or the line chart of PUT OI minus Call OI is represented in blue line by default in AOC. It combines both the put and the call oi in single line. It shows the resultant of both side writers.

If blue line (OI PE – OI CE) is rising it means that strike price is bullish. If its flat it means its neutral. If its falling that indicated bearishness.

Note: You can customize which lines are visible by default from chart settings menu.

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Now that we have a basic understanding of OI and OI change line chart, lets look how can we use them to eliminated possible bad trades.

1. While Buying CE or Selling PE

We always buy CE or Sell PE from support. Each strike price has its own support and resistance which are also called elastic ends.

For example, lets assume we are going to buy CE from support of strike price 23550, then we will check OI or OI Change chart of strike price just below that ie. 23500 and that strike price should not be bearish. It can be neutral or positive(bullish). If the strike price just below our support is bearish there are high chances that we might trigger our SL. Thus if below strike price is bearish we will avoid bullish trade.

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2. While Buying PE or Selling CE

We always buy PE or Sell CE from resistance. Each strike price has its own support and resistance which are also called elastic ends.

For example, lets assume we are going to buy PE from support of strike price 22700, then we will check OI or OI Change chart of strike price just above that ie. 22750 and that strike price should not be bullish. It can be neutral or negative(bearish). If the strike price just above our resistance is bullish there are high chances that we might trigger our SL. Thus if above strike price is bullish we will avoid bearish trade.