Open high low (OHL) strategy refers to an intraday trading strategy wherein a buy signal is generated when any stock or index has the exact value for open as well as low. This serves as an indication a trader must buy a stock. Conversely, a selling signal gets generated when the value of the stock or index is identical for both open and high. This signal indicates that a trader should sell their stock.
Here is what you as a trader should know about this strategy.
A distinct feature of OHL strategy is that traders need to analyse long-term stock charts. Even though this is an intraday trading method, experts recommend that individuals should avoid trading against a stock’s trend. Hence, it is crucial for traders to carry out an analysis of the daily/weekly charts to make sure that they buy or sell shares based on a stock’s trend.
Generally, the risk-reward ratio is high in the case of OHL strategy as traders set ‘stop loss’ near the strike price under this intraday trading method. Usually, when the opening price of a stock is lower, traders set stop loss at a low of the opening 15-minute candlestick.
Traders who opt for open high low strategy can assess a stock’s trend with more precision. This enables them to make investment decisions more efficiently. Traders can put certain stocks on their watchlists and decide when to invest in them. As a result, they are able to choose the best sector for investing their funds.
The OHL strategy can work in multiple ranges.
Generally, the trading volume in the market is high in the first 15 minutes, leading to more favourable trading opportunities. Such opportunities arise owing to the increased trading volume and price range expansion.
For instance, if the value is the same for open as well as low of the day, it serves as an indication that there’s excess demand in the market, which in turn leads to higher stock prices. That said, the reverse will hold true if the value is identical for open and high. In other words, there will be excess supply in the market. Accordingly, stock prices will be lower.
Intraday traders opting for the open high low strategy must give more emphasis on the opening trading session as that’s when they have high chances of maximising their returns.