Intraday trading is considered the best way to profit significantly within a trading day. Intraday traders employ numerous tools like charts and patterns to interpret stock performance. They need multiple strategies to gauge the performance of the scripts and make the right trading decisions. Numerous strategies can help day traders to book profits. One is the open high and low strategy (OHL strategy). Let us elaborate on the strategy.
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What is an OHL strategy?
The strategy is originally named ‘Open Dive.’ Following the OHL strategy, a day trader looks at the pre-market and previous days’ opening & closing levels.
When any script or index has the same value for open and low levels, the strategy gives a buy signal. It means traders make a buy call if the stock has the same open and low level. Contrarily, it gives a sell signal when the script or index is the same for both open and high levels. The trader takes a sell call if the stock has the same open and high level.
Day traders must get out of the position as soon as they achieve the profit target. Traders set the stop loss level near the strike price. Therefore, the risk-reward ratio is generally high. The risk-reward ratio can be optimized with the help of VectorVest analysis and insights.
How does OHL Strategy Work for Day Traders?
The strategy can work primarily in three ranges.
- First, if the stock is trading within a specific range for a few trading sessions, traders can look at the breakout from this particular range. It will be the decisive point after a sideways trading session.
- For the second range, traders can use the strategy at the opening of the trading session. You need to add the stock that opens low. Looking at the index, you can decide to take a long position. Also, you can find that stock trading volume is gradually increasing. It will be a confirmation of your long call.
- The third range is when the demand or supply is strong for the stock. The demand zone indicates the price range from where the stock always bounces back, and the supply zone refers to the price range from where the stock price always declines because of excess supply.
After analysing the stock in these ranges, traders can add them to the watchlist. Generally, day traders trade stocks with an up average in the morning session because increasing volatility in the stock makes trading the stocks easy.
Executing the OHL strategy
The stock market opens at 9.30 a.m. Traders need to be prepared to enter the trades a few minutes before the opening time. Let us explain what is trading process using the OHL strategy.
- Log in to your trading account.
- Create a watchlist of scripts at least 15 minutes before the trading session starts. To create the watchlist, you need to note down the highs, lows and pivot levels of the previous trading session.
- You can go through the analytical charts and observe how the selected script is moving.
- At around 9.45 a.m., you may be ready to take a long entry.
- Wait until the price breaks out of the previous day’s high. Then check if today’s opening price equals today’s low. If it is, you can take your long call. You need to set the stop loss at today’s low price.
- Similarly, you can check if today’s opening price equals today’s high. If it is, you can go short. Stop loss level range will be at today’s high price.
You can exit the trade either when the trading day ends or as per your predetermined stop loss.
Traders have to exit the short position if the long trade stock hits a new low or high during the trading session. You can check new highs and lows on your broker’s trading platform. It is also necessary to exit the position if the stock breaks a low. You can re-enter the position whenever it triggers again.
Thus, the OHL strategy is considered the best scalping technique for day traders as they can attempt to profit from either side, buy or sell. It makes traders profit over time with considerable practice. Like most traders, master a single technique first and then move to the other.
You can open your trading account online to trade in the demat-based trading system. The demat full form is dematerialised, i.e. the digital form of securities.