This is a step by step guide that will help you setup your trades everyday and discover trending stocks using OI and Options Chain data along with technical charts.
The best thing about this setup is that you can have a long list of stocks and apply your favorite technicals to each stock with the click of a mouse.
STEP 1: DISCOVER STOCKS BY ANALYZING OI DATA
Make a list of stocks that look interesting based on Open Interest data. I compiled a sample list based on OI data of 8/6/18 EOD, and am assuming that you know by now how to analyze OI data.
So, a list of bullish stocks (I’ve taken about 9+% OI along with a rise in price and volume to be high-probability bullish) across three sectors are:
IGL, GAIL, Reliance, Indian Bank, Bajaj Finance, Star (Strides Shasun), Wockhardt Pharma.
So we now have a sample list of stocks that could do well on Monday. These are the stocks that we must watch on Monday morning and take a chance based on their charts.
Note that this is just a sample list and you probably can figure out more stocks after analyzing all the sectors.
Now remember this: OI keeps changing and therefore you must have it open while you trade. You also must check how it keeps changing and bring new stocks (bullish or bearish) under your radar.
Typically you can start checking OI data from 10 AM onwards and check every 15 minutes or so for changes.
Right, now let’s check the Options Chain of any one of the shortlisted stocks.
STEP 2: ANALYZE THE OPTIONS CHAIN DATA
I’ve analyzed the Star (Strides Shasun) options chain and here’s what it looks like:
Here’s my analysis:
The stock is at 357.
(a) Call writers are squaring up their positions at 360CE 28 June 2018. You can see OI for that CE is down by 10,200. This implies that the writers are afraid to short the 360CE and therefore the chances of the stock moving higher look bright.
(b) Call writers are happy about selling 380CE, 400CE and higher CEs for the same expiry implying that they don’t see the stock moving beyond 380-400 up to 28 June.
(c) Put writers are unafraid of writing 360 and below PEs, and you can also see that most Put buyers have lost money (while most CE buyers have made money). This implies that the writers don’t see the stock falling much from current levels up to 28 June.
Therefore, Star or Strides Shasun looks like a bullish trade in the short term (BTST to 4-5 days). Of course, with a strict stop loss.
Now, we have a probable trades for Monday and so set up the charts.
STEP 3: SET UP THE CHARTS
Let’s make a list of all the stocks mentioned above to check on the charts on Monday.
Open Investing.com, and sign in to your free account.
Hover the mouse over your Name in the member bar at the top and choose “Portfolio” from the drop down.
Once you are in the portfolio section, enter the stocks you have selected.
Now click on any one symbol. I’m clicking on Strides Shasun as it is used as an an example in this post.
Now click on the “Charts” tab and it will open the chart for the first stock inn the list.
Expand the chart to full screen mode.
Apply the indicators suggested in our trade setup (Ichimoku, Supertrend, 20-50 0r 13-48 EMA, MACD).
Notice that all the stocks that you have added in the portfolio get featured on the right.
You can add as many stocks as you like and keep deleting stocks that no longer interest you.
STEP 4: ANALYZE THE CHARTS
As an example I’ve analyzed Strides Shasun 1-Hour chart as this period is ideal for a swing trade analysis.
Here’re my observations:
- Supertrend indicated a buy at 358 and the stock hit 370+ before reacting back to 357. In any case, SuperTrend gives good entries but is late on exits.
- The 20 EMA is still below 50 EMA and this is not a bullish sign.
- The price is below the Ichimoku cloud, base lines and the EMAs. This data implies that the stock is in a downtrend.
- The 1-Day and 1-Week charts too suggest that the stock is in a bear grip.
- The MACD line is drooping as well. Not a good sign.
- The Options Chain, on the other hand, indicates bullishness and the possibility of the stock hitting between 360-380 in the short run.
- The OI data too is bullish.
- The charts are contrasting with the Options and OI data. Typically, the action starts in the derivatives before hitting the cash market.
- So, while it makes sense watching Strides Shashun on the charts, it also makes sense to try a long strangle in the options by buying PE and CE at ITM (In The Money) prices. This is because Strides Shasun looks very volatile give the divergent views of the derivatives and the charts data. This post helps you understand what a long strangle is.
STEP 5: USING THIS SETUP
- Revise the setup at the end of day, before every trading day.
- Be ready with list of stocks at 9.15 AM and by then you should know the stocks with the highest potential to move either way.
- Start checking the OI and Options Chain data every 15 minutes starting from 10.30 AM for OI and 10 AM for the Options data.
- Keep adding or deleting stocks to the Investing.com portfolio per your analyses.
- Keep analysing charts by switching between stocks. Additionally you can set up alerts per stock so that you know when stock prices touch your target.
- Repeat.Perform a few paper trades to get a hang of this style. Good luck.