Random thoughts on technical analysis
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The game of open interest and trading against the crowd
This is a huge subject and complicated,( its a nice way to make air serious and give impression ur telling something huge
)
I use to wonder why our teachers used to say why trade against the crowd?,he use to say bcuz 90% ppl fail in the market.But looking at indicators and analyzing them i use to wonder ( again )i am chasing the crowds psychology again, how contradictory both things can be.
Then my concept got clear,for that we need to understand what is open interest? open interest is given quantity in derivatives ex. on nifty equity ( combining nifty 50 equity stocks) suppose there are for sake of conveniance100 contracts alloted. that figure is fixed.now some one is buying and some one is selling ,say public is buying nifty contracts,that means some one selling, when majority of crowd buying means lets say 75% nifty contracts brought( that is 75 contract brought and 25 sold ) for that to happen some one must selling to them. lets say x banker selling them from start( alloted 100 contracts are fixed ), now he sold nifty contracts to 75% crowd, his cost for selling those contract is same as crowds combined cost for buying those contracts. that means he is ( x banker ) a man with big pocket, our x banker is very rich,he can afford selling to 75% crowd,and he is rich means he is smart and he is in this bzness long enough to trade profitably. and he knew something that crowd doesnt know,that thing might be anything, a company going to show bankrupt account,bad profit or etc... so it pays to trade with him,
this is the concept,
sometimes that xbanker can be wrong as he is a human, but that x banker will remain winning with 75 % probability !
p.s.i am a disciple of sir Alexander Elder, this concept is totally of sir Alexander Elder,i just drew figures to oversimplified it.
herrick payoff index (hpi) tracks volume, price and open interest into an aggregate value.That use to come with trade station but our derivative stock market is not very liquid so it doesnt give reliable signals,now there wd have been modern versions but i can check oi manually( we are ahead of china here,i heard they dont have derivatives market yet,no shorts allowed there,so why its very volatile,when it rose it rose like rocket cuz of absence of shorts)
This is a huge subject and complicated,( its a nice way to make air serious and give impression ur telling something huge
)I use to wonder why our teachers used to say why trade against the crowd?,he use to say bcuz 90% ppl fail in the market.But looking at indicators and analyzing them i use to wonder ( again )i am chasing the crowds psychology again, how contradictory both things can be.
Then my concept got clear,for that we need to understand what is open interest? open interest is given quantity in derivatives ex. on nifty equity ( combining nifty 50 equity stocks) suppose there are for sake of conveniance100 contracts alloted. that figure is fixed.now some one is buying and some one is selling ,say public is buying nifty contracts,that means some one selling, when majority of crowd buying means lets say 75% nifty contracts brought( that is 75 contract brought and 25 sold ) for that to happen some one must selling to them. lets say x banker selling them from start( alloted 100 contracts are fixed ), now he sold nifty contracts to 75% crowd, his cost for selling those contract is same as crowds combined cost for buying those contracts. that means he is ( x banker ) a man with big pocket, our x banker is very rich,he can afford selling to 75% crowd,and he is rich means he is smart and he is in this bzness long enough to trade profitably. and he knew something that crowd doesnt know,that thing might be anything, a company going to show bankrupt account,bad profit or etc... so it pays to trade with him,
this is the concept,
sometimes that xbanker can be wrong as he is a human, but that x banker will remain winning with 75 % probability !
p.s.i am a disciple of sir Alexander Elder, this concept is totally of sir Alexander Elder,i just drew figures to oversimplified it.
herrick payoff index (hpi) tracks volume, price and open interest into an aggregate value.That use to come with trade station but our derivative stock market is not very liquid so it doesnt give reliable signals,now there wd have been modern versions but i can check oi manually( we are ahead of china here,i heard they dont have derivatives market yet,no shorts allowed there,so why its very volatile,when it rose it rose like rocket cuz of absence of shorts)
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The game of open interest and trading against the crowd
This is a huge subject and complicated,( its a nice way to make air serious and give impression ur telling something huge )
I use to wonder why our teachers used to say why trade against the crowd?,he use to say bcuz 90% ppl fail in the market.But looking at indicators and analyzing them i use to wonder ( again )i am chasing the crowds psychology again, how contradictory both things can be.
Then my concept got clear,for that we need to understand what is open interest? open interest is given quantity in derivatives ex. on nifty equity ( combining nifty 50 equity stocks) suppose there are for sake of conveniance100 contracts alloted. that figure is fixed.now some one is buying and some one is selling ,say public is buying nifty contracts,that means some one selling, when majority of crowd buying means lets say 75% nifty contracts brought( that is 75 contract brought and 25 sold ) for that to happen some one must selling to them. lets say x banker selling them from start( alloted 100 contracts are fixed ), now he sold nifty contracts to 75% crowd, his cost for selling those contract is same as crowds combined cost for buying those contracts. that means he is ( x banker ) a man with big pocket, our x banker is very rich,he can afford selling to 75% crowd,and he is rich means he is smart and he is in this bzness long enough to trade profitably. and he knew something that crowd doesnt know,that thing might be anything, a company going to show bankrupt account,bad profit or etc... so it pays to trade with him,
this is the concept,
sometimes that xbanker can be wrong as he is a human, but that x banker will remain winning with 75 % probability !
p.s. dont mix this with open interest in options, as in india our option market is in nascent stage,so it has few loop holes which can sometimes remarkably able to show where in general professionals placing trades.Its out of my writing skills to write here hhehe so i will let it go
This is a huge subject and complicated,( its a nice way to make air serious and give impression ur telling something huge
)I use to wonder why our teachers used to say why trade against the crowd?,he use to say bcuz 90% ppl fail in the market.But looking at indicators and analyzing them i use to wonder ( again )i am chasing the crowds psychology again, how contradictory both things can be.
Then my concept got clear,for that we need to understand what is open interest? open interest is given quantity in derivatives ex. on nifty equity ( combining nifty 50 equity stocks) suppose there are for sake of conveniance100 contracts alloted. that figure is fixed.now some one is buying and some one is selling ,say public is buying nifty contracts,that means some one selling, when majority of crowd buying means lets say 75% nifty contracts brought( that is 75 contract brought and 25 sold ) for that to happen some one must selling to them. lets say x banker selling them from start( alloted 100 contracts are fixed ), now he sold nifty contracts to 75% crowd, his cost for selling those contract is same as crowds combined cost for buying those contracts. that means he is ( x banker ) a man with big pocket, our x banker is very rich,he can afford selling to 75% crowd,and he is rich means he is smart and he is in this bzness long enough to trade profitably. and he knew something that crowd doesnt know,that thing might be anything, a company going to show bankrupt account,bad profit or etc... so it pays to trade with him,
this is the concept,
sometimes that xbanker can be wrong as he is a human, but that x banker will remain winning with 75 % probability !
p.s. dont mix this with open interest in options, as in india our option market is in nascent stage,so it has few loop holes which can sometimes remarkably able to show where in general professionals placing trades.Its out of my writing skills to write here hhehe so i will let it go
Message not clear !!!
open interest
What is Open Interest
Open Interest is the total number of outstanding contracts that are held by market participants at the end of the day.
It can also be defined as the total number of futures contracts or option contracts that have not yet been exercised (squared off), expired, or fulfilled by delivery.
Open interest applies primarily to the futures market. Open interest, or the total number of open contracts on a security, is often used to confirm trends and trend reversals for futures and options contracts.
Open interest measures the flow of money into the futures market. For each seller of a futures contract there must be a buyer of that contract. Thus a seller and a buyer combine to create only one contract.
Therefore, to determine the total open interest for any given market we need only to know the totals from one side or the other, buyers or sellers, not the sum of both.
The open interest position that is reported each day represents the increase or decrease in the number of contracts for that day, and it is shown as a positive or negative number.
How to calculate Open Interest
Each trade completed on the exchange has an impact upon the level of open interest for that day.
For example, if both parties to the trade are initiating a new position ( one new buyer and one new seller), open interest will increase by one contract.
If both traders are closing an existing or old position ( one old buyer and one old seller) open interest will decline by one contract.
The third and final possibility is one old trader passing off his position to a new trader ( one old buyer sells to one new buyer). In this case the open interest will not change.
Benefits of monitoring open interest
By monitoring the changes in the open interest figures at the end of each trading day, some conclusions about the days activity can be drawn.
Increasing open interest means that new money is flowing into the marketplace. The result will be that the present trend ( up, down or sideways) will continue.
Declining open interest means that the market is liquidating and implies that the prevailing price trend is coming to an end. A knowledge of open interest can prove useful toward the end of major market moves.
A leveling off of open interest following a sustained price advance is often an early warning of the end to an uptrending or bull market.
Open Interest - A confirming indicator
An increase in open interest along with an increase in price is said to confirm an upward trend. Similarly, an increase in open interest along with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal.
The relationship between the prevailing price trend and open interest can be summarized by the following table.
Price
Open Interest
Interpretation
o.i.Rising prices Rising Market is Strong
o.i. Rising price Falling Market is Weakening
o.i.Falling prices Rising Market is Weak
o.i.Falling price Falling Market is Strengthening
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plz forgive my writing skill citrus ...ok seriously shoot the qs wt u didnt understand, i will try 2 answer....ok see buddy i am not sure i will able to make u understand this open interest think,as its bit complicate .. i have to search my notes n try to copy pest ..
...ok seriously shoot the qs wt u didnt understand, i will try 2 answer....ok see buddy i am not sure i will able to make u understand this open interest think,as its bit complicate .. i have to search my notes n try to copy pest ..
The concept of OI is very clear.
Basically first few lines are some what less clear and following question remain unanswered.
How charts can be used to trade against the crowd?
How indicators are related to OI?
How OI indicate crowd behaviour?
Thanks for the immediate reply.
Regards.
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hi citrus,i am impressed with ur curiosity and clear line of thinking,keep posting ur views here,it also helps me, about ur qs, trading against the crowd and charting and indicators , is ll related with open interest of options, i will past wt i wrote
(p.s. dont mix this with open interest in options, as in india our option market is in nascent stage,so it has few loop holes which can sometimes remarkably able to show where in general professionals placing trades.Its out of my writing skills to write here hhehe so i will let it go )
so, sorry for my incomplete post,but i wasnt sure how to write in words, leme try now,
Over and above that
Open interest is different from volumes.
Suppose you buy one contract of Satyam 230 calls from me, the open interest is one contract, as is the volume in that option.
Now, suppose you immediately sell the 230 calls to another person, the volumes will increase to two contracts. The open interest, however, remains at one! Why?
As you have sold an option that you bought earlier, you are out of the market, while another person has entered for the first time.
So, this new trader is long one contract, while I am still short one contract. Therefore, the open interest is only one contract.
Open interest can be used to read the sentiment in the stock concerned. How?
Observe the open-interest-to-volumes ratio. If this ratio is low but rising, it means that the volumes traded are higher than the open interest. This is an indication that traders are accumulating the option.
In such cases, the rise (change) in open interest over the previous day will be far higher than the rise (change) in volumes.
For instance, open interest may rise from 25 contracts to 100 contracts (300 per cent increase) while volumes may rise from 200 to 400 contracts (100 per cent increase).
Such a signal in a call option may well mean that the stock could move up.
If such a signal occurs in a put option, it may well mean that the stock could move down.
Open interest is different from volumes.
Suppose you buy one contract of Satyam 230 calls from me, the open interest is one contract, as is the volume in that option.
Now, suppose you immediately sell the 230 calls to another person, the volumes will increase to two contracts. The open interest, however, remains at one! Why?
As you have sold an option that you bought earlier, you are out of the market, while another person has entered for the first time.
So, this new trader is long one contract, while I am still short one contract. Therefore, the open interest is only one contract.
Open interest can be used to read the sentiment in the stock concerned. How?
Observe the open-interest-to-volumes ratio. If this ratio is low but rising, it means that the volumes traded are higher than the open interest. This is an indication that traders are accumulating the option.
In such cases, the rise (change) in open interest over the previous day will be far higher than the rise (change) in volumes.
For instance, open interest may rise from 25 contracts to 100 contracts (300 per cent increase) while volumes may rise from 200 to 400 contracts (100 per cent increase).
Such a signal in a call option may well mean that the stock could move up.
If such a signal occurs in a put option, it may well mean that the stock could move down.
option open interest part 2
Said very well, as equity options are illiquid,and before the major news flow,sometime insiders knew,and buying option is cheaper and its one of leveraged buying indirectly in equity,so equity options can hint that, in my previous post i wrote about g e shipping,same thing happened, but one must not confuse it with index option, as index made of ( ex nifty made of 50 equitys)lot of equity's. and indexes are highly distributed among entities,and one entity can not be as sure about index as about one particular stock,so usually in index option there r more more ' internals' sell the option,as historically its proven fact that option sellers are more profitable than option buyers.most of the time options expire worthless.
below is a research report,originally published in investopedia
p.s.index options put call ratio as a indicator,is very treaky,it must look in context with niftys open interest and its price movement,this indicator alone cant be sure way to predict directions of market.
in above fig. third bar from left,shows open interest in nifty rose along with o.i. p/c ratio,that means o.i. in put rose out of sudden more than o.i. in call,mostly 4200 put show highest o.i. build up,that was sure sign that,big guys gone either wrote put,or gone long on nifty by hedging with put,
basically its very debatable never ending subject,lots of research still going, but as per evidence go,o.i. put/call ratio help to judge the direction for shorter time frame.And i mentioned this indicator bcuz,now a days most technical analyst covering this indicator.It was my very small way to explain this,else there is one book is not sufficient for this.
Said very well, as equity options are illiquid,and before the major news flow,sometime insiders knew,and buying option is cheaper and its one of leveraged buying indirectly in equity,so equity options can hint that, in my previous post i wrote about g e shipping,same thing happened, but one must not confuse it with index option, as index made of ( ex nifty made of 50 equitys)lot of equity's. and indexes are highly distributed among entities,and one entity can not be as sure about index as about one particular stock,so usually in index option there r more more ' internals' sell the option,as historically its proven fact that option sellers are more profitable than option buyers.most of the time options expire worthless.
below is a research report,originally published in investopedia
p.s.index options put call ratio as a indicator,is very treaky,it must look in context with niftys open interest and its price movement,this indicator alone cant be sure way to predict directions of market.
in above fig. third bar from left,shows open interest in nifty rose along with o.i. p/c ratio,that means o.i. in put rose out of sudden more than o.i. in call,mostly 4200 put show highest o.i. build up,that was sure sign that,big guys gone either wrote put,or gone long on nifty by hedging with put,
basically its very debatable never ending subject,lots of research still going, but as per evidence go,o.i. put/call ratio help to judge the direction for shorter time frame.And i mentioned this indicator bcuz,now a days most technical analyst covering this indicator.It was my very small way to explain this,else there is one book is not sufficient for this.
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WHY WORLD DONT WANT LEADERS
well whoever read j.krashnamurthi,must be familiar with this, but u now wondering why this related with technical analysis?,
There r economic cycles,boom burst cycles, etc... with each and every cycle there becomes new gurus and new followers, with each cycle those gurus get vanished, and so there followers.In this world there r fights about religion,principals and everything,all the major violence in history related with the concept of ideology, we idol some one n we fight with each other, basically we r all one.
In technical analysis i found there r debates why my method is good n why ur bad, why this pattern good n why that bad, why technical analysis good n why fundamental analysis bad, so on n on .., basically by general principal all things r same, we try to figure out the future movement of the market, by this way or that, concept is same, if by one concept u benefited good for u,by other concept u benefited good for u also, why fight? n tell others this is good n that is bad, my system is good n urs bad ? it just beat the basic commonsense,whoever want to succeed in market must hug each n very concept of technical analysis along with fundamental analysis. I have seen people who claimed technical analyst n run some investment firms,when asked what is pe ratio? they gone blank n saying " I am purely technical analyst" , ant we making a cast n sub cast?
I wrote this only because i have seen lot of new guys here learning to trade,& lot of pros fighting elsewhere to prove why i am good,for me who earns money in market is good,by this way or that.also i just dont want others to misguide by lot of noise around.Lot of software pros want to sell there softwares,falsely making u believe its a magic formula,
keep ur eyes n ears open to each n every thing, there is no magical formula, if there is any formula to succeed in market, then it is no formula.... keep ur all options open market dont want one specific formula
well whoever read j.krashnamurthi,must be familiar with this, but u now wondering why this related with technical analysis?,
There r economic cycles,boom burst cycles, etc... with each and every cycle there becomes new gurus and new followers, with each cycle those gurus get vanished, and so there followers.In this world there r fights about religion,principals and everything,all the major violence in history related with the concept of ideology, we idol some one n we fight with each other, basically we r all one.
In technical analysis i found there r debates why my method is good n why ur bad, why this pattern good n why that bad, why technical analysis good n why fundamental analysis bad, so on n on .., basically by general principal all things r same, we try to figure out the future movement of the market, by this way or that, concept is same, if by one concept u benefited good for u,by other concept u benefited good for u also, why fight? n tell others this is good n that is bad, my system is good n urs bad ? it just beat the basic commonsense,whoever want to succeed in market must hug each n very concept of technical analysis along with fundamental analysis. I have seen people who claimed technical analyst n run some investment firms,when asked what is pe ratio? they gone blank n saying " I am purely technical analyst" , ant we making a cast n sub cast?
I wrote this only because i have seen lot of new guys here learning to trade,& lot of pros fighting elsewhere to prove why i am good,for me who earns money in market is good,by this way or that.also i just dont want others to misguide by lot of noise around.Lot of software pros want to sell there softwares,falsely making u believe its a magic formula,
keep ur eyes n ears open to each n every thing, there is no magical formula, if there is any formula to succeed in market, then it is no formula.... keep ur all options open
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