Summary
This article explores the financial pros and cons of pursuing an Open High Open Low (OHOL) trading strategy in financial markets. We will cover how such a strategy can be executed and the tools that could aid a trader’s analysis. We will also discuss some of the potential risks that could arise from following an OHOL trading strategy.
Open High Open Low (OHOL) is an intraday stock trading strategy seeking to generate profits from short-term intraday price movements. OHOL involves the purchase and sale of investments (including stocks, futures, and currencies) on the same day to maximise profits. It requires strategic thinking, analysing trends, staying abreast of pertinent news, and quick decision-making in order to make the most of intraday market opportunities. While the rewards for such a strategy could be high, it is not without its share of risks.
How to execute an OHOL trading strategy
An OHOL trading strategy aims at spotting trends in the stock market and profiting from data-driven trading decisions. OHOL involves the purchase of a company’s equity shares when the stock’s open price is the same as its low price. Conversely, when the stock’s open price is the same as a day’s high price, it triggers a selling signal to the executor of the OHOL strategy. The open price for the stock refers to the price at which the day’s first trade is made at the stock exchange. The open price is significant because it reflects the impact of any information released between the previous day’s last trade and when the market opens on the following day.
Therefore, as a part of the OHOL trading strategy, all positions are closed by the end of a trading day, and no stock balances are maintained by the executor of this strategy.
OHOL in practice
The OHOL trading strategy focuses on identifying and executing a position in a security based on its opening price and early movement in the initial part of the day. Should the price of the security exceed its opening price, this could be read as a bullish signal for the security and the investor could choose to go long on the security or purchase it. Conversely, if the price of the security falls below its opening level, it is perceived as a bearish indicator and the trader could choose to either sell the security or short it.
In practice, traders often put a stop-loss order on a security at a certain price before purchasing it to limit their risk exposure. Traders may also seek other forms of validation such as technical analysis to buttress their trading decisions in the OHOL trading strategy. This could provide valuable data on appropriate entry and exit price points for the security.
Methods to execute the OHOL trading strategy
These practices should be followed by traders to optimise their opportunities while executing the OHOL trading strategy:
- In-depth securities chart analysis provide valuable information on prevailing market trends
- The use of stop-loss orders help reduce financial risks
- Using scanners to evaluate stock price movements and creating watchlists for certain stocks help traders make timely and informed decisions
Risks associated with the OHOL trading strategy
Given the inherent nature of the OHOL strategy and the way it has been engineered, there is an element of risk and traders must be wary of them.
When traders sell securities in an open high scenario, they lock in a price for the securities. And while potential gains could be lost should prices rise further, losses are averted. However, the losses that could arise should the securities be sold short in the market in an open high trading strategy can be unlimited.
Similarly, unless a stop-loss order is executed at the same time as an open low scenario, the losses on such executions can be huge if the security’s price keeps falling.
Compounding the risks involved is the fact that these are short-term trading strategies, which don’t consider a security’s fundamentals while making trading decisions. Besides, the positions taken in each security must be closed by the end of the day. This short-sightedness can result in unnecessary pain for traders and keep genuine investors at bay.
In conclusion
To sum up, traders should factor in long-term trends and analyse the fundamentals while selecting the securities they trade in. While profits may be generated faster by following the OHOL strategy, investor greed could see higher trading volumes in intraday markets with the aim of generating more profits. However, this is a double-edged sword and could result in massive losses. Hence, investor caution is essential and warranted.