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Open High Open Low Strategy in Intraday Trading

  • Marisha Bhatt
  • Feb 15 2022
  • 6 minutes
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Trading in stock markets is gaining a lot of momentum and has become a primary source of income for many traders. There are many strategies that can be used by traders for efficient and profitable trading. A form of trading is intraday trading. It is when the trade of the day is squared off in the same trading session. Open high open low strategy is one of the common strategies used in intraday trading. 

Given below are the meaning and other related details of the open high and open low strategy. 

What is the open high open low strategy?

This is a relatively simple strategy where the buy signal is triggered when the stock price has the same value of their open and low. On the other hand, the sell signal is triggered when the open and the high value of the stock is the same. This strategy can be applied for trading in indices too. It helps in picking the right sectors to invest in or pull out of based on the correct timing of the markets. Thus, this strategy can also be used to restructure the trading portfolio to maximize profitability. 

What are the features of the open high open low strategy?

The open high open low strategy is a strategy often used by traders for their intraday trading. The key features of this strategy that make it an attractive option are highlighted below.

Long term approach of the strategy

Although this strategy can be used for intraday trading, the focus of this strategy is long-term analysis. This strategy requires extensive research of the stock on part of the traders. Such detailed and long-term analysis of the stock charts allows the traders to effectively decide when to buy or sell the stock based on the price movements. On many occasions, traders bet against the price movements especially in intraday trading to gain quick profits. The essence of this strategy is to never go against the price trend. This will help the traders especially new traders take safe and potentially profitable positions in intraday trading. 

Open high open low strategy can be used to effectively get the correct knowledge of the stock. At the same time, they can be used to analyze the trend of the sector or the market as a whole. This knowledge will help the traders further analyze which sectors to invest in based on other factors like the risk-reward parameter, the cost of investment, etc. 

Risk-reward analysis

Stop-loss is the best tool for any trader to limit their exposure in any trading position. The open high open low strategy allows the traders to trade in high risk high reward scenarios. Therefore, putting stop loss at correct intervals is essential to limit the losses while aiming for higher profits. An important point to remember is that the stop loss should not be beyond 1% of the stock price. A stop loss beyond 1% will be a high risk situation and may not be advisable. 

How to execute the open high open low strategy?

The steps to successfully execute this strategy are mentioned below.

  1. Login to the trading account to ensure that there are sufficient funds to trade.
  2. Traders need to select the targeted stocks and watch out for the highs, lows, and pivot levels of the previous session to establish a trend. 
  3. Traders can take a long position of the stock or the index breaks the previous day’s high and the opening price is equal to the low. The stop loss should be at the current day’s low price.
  4. On the other hand, for taking a short position, the traders should consider the previous day’s low and watch out when the stock or the index breaks the previous day’s low and the opening price is equal to the high of the day. The stop loss, in this case, should be equal to the current day’s high. 

What are the factors to consider before applying the open high open low strategy?

While applying this strategy there are a few factors that have to be considered by traders for successful execution of the same. Some of such key factors are mentioned below.

  1. The key to having a successful implementation of this strategy is to trade in high-volume stocks. 
  2. It is essential to note that the closing [price of the first candle should be lower than the closing price of the second candle. 
  3. The traders should aim to minimize their risk exposure many experts consider the ideal risk-reward ratio for this strategy to be 1:2.
  4. The focus should be on the range breakout to enter into any short or long position.

Conclusion

Open high open low is one of the popular intraday trading strategies applied by seasoned traders to carry out successful trades. This strategy requires a thorough understanding of the market trends and constant analysis to watch out for breakouts. Novice traders can take the help of professional advisors to successfully execute this strategy.

FAQs

What is the starting point to execute the open high open low strategy?

The starting point to successfully execute the open high open low strategy is to watch out for stocks that have the stocks or index level where the opening price is equal to its low or opening price is equal to its high.

What is the ideal risk-reward ratio in the open high open low strategy?

The ideal risk-reward ratio for open high open low strategy is 1:2 (keeping the risk at a minimum).

Can the open high open low strategy be applied by analyzing a stock for a short period?

No. To successfully apply the open high open low strategy, traders should analyse and study a stock or index with a long-term perspective.

What is the best time to invest in a trade using the open high open low strategy?

The ideal time to invest in a trade using the open high open low strategy is after the completion of half-hour from the opening of the market. This time gap will allow the traders to analyze the trend that is established in the trading session.

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