OHL Strategy: Explained for Beginners!

Intraday trading can be quite overwhelming for beginners. However, certain strategies have stood the test of time, and are used by both newbie and veteran traders today. One such strategy is the Open = High/Low (OHL) Strategy. This simple yet effective approach helps traders identify market trends early in the trading session, making it a good choice for those new to trading.

In this article, we will explore the OHL strategy in detail! We’ll be covering:

• The basics of candlestick patterns
• What is OHL strategy?
• How to identify stocks for OHL trading?
• The entry, exit, and risk management criteria
• A free tool to screen OHL stocks

Understanding Candlestick Patterns

Before diving into the strategy, we need to learn the basics of candlesticks in the stock market. A candlestick represents the price movement of a security/stock over a specific time frame. It graphically represents price and volume data. A candlestick shows a stock’s opening and closing prices and the high and low prices during a period. These price points are known as the OHLC data in short, which stands for Open, High, Low, and Close, respectively.

• Green (Bullish) Candlestick: Closing price is higher than the opening price.
• Red (Bearish) Candlestick: Closing price is lower than the opening price.

The OHL Strategy Explained

The Open is High/Low (OHL) Strategy is fundamentally based on three key price points during the trading day:

• Open Price: The price at which a stock begins trading when the market opens.
• High Price: The highest price reached during the trading session.
• Low Price: The lowest price reached during the trading session.

The core principle of the OHL strategy is:

• If a stock’s opening price equals its lowest price of the day, it signals a bullish trend. You can enter a buy trade.
• If a stock’s opening price equals its highest price of the day, it signals a bearish trend. You can enter a sell trade.

Let’s make it easier to learn:

If Open = Low → Buy the stock

If Open = High → Sell the stock

This strategy capitalises on the initial market movements, particularly during the first 15 minutes after the market opens. There’s typically higher volatility during this time, and price movements can be more defined.

How to Identify Stocks for OHL Trading?

With thousands of stocks available, finding the right ones can be challenging. You can filter stocks using a free screening tool we’ve created!

Steps to Find OHL Stocks?

1. Use an OHL Screener Tool: This tool scans all F&O (Futures & Options) enabled stocks and identifies those meeting OHL conditions.

2. Apply Filtering Criteria:

• If open = high, the stock is marked bearish.
• If open = low, the stock is marked bullish.
• A buffer of 0.06% ensures slight deviations don’t affect accuracy.

3. Focus on Nifty 50 Stocks: Filtering further by Nifty 50 stocks increases reliability.

OHL Strategy: Step-by-Step Execution

1. Identifying Market Trend

• Check the screener tool between 9:30 AM - 9:45 AM.
• Ensure that the stock still maintains the OHL condition.
• Confirm market trend direction (bullish or bearish).

For example, if you notice that a stock opens at 100 and remains at that level without dropping below, it may indicate a bullish trend. On the other hand, if it opens at 100 and does not rise above that level, it could signal a bearish trend

2. Entry Criteria

• If the open price equals the low, enter a buy trade when the stock breaks a key resistance level.
• If the open price equals the high, enter a sell trade when the stock breaks a key support level.

3. Exit Criteria

• Stop Loss (SL): Place SL above the day’s high (for sell trades) or below the day’s low (for buy trades).
• Target Profit (TP): Aim for a risk-to-reward ratio of at least 1:1 or 1:2, ensuring that your potential profit outweighs your risk.
• Adjust SL and TP based on price action and market conditions.

Things to Watch Out For

To improve trade accuracy in the OHL strategy, consider these factors:

1. Market Trend Confirmation: Always be aware of the overall market conditions. If the broader market (NIFTY or SENSEX) is trending bearish, it might be wise to be cautious about taking long positions, even if individual stocks show bullish signals.
2. Avoid High-Volatility Days: Market news and economic events (like Union Budget day) can significantly impact stock prices. On days with major announcements, be prepared for increased volatility and adjust your trading strategy accordingly.
3. Volume Analysis: High trading volume often correlates with stronger trends. Ensure you are trading stocks with substantial volume, as this indicates greater liquidity and can lead to more reliable price movements. Also identify key support and resistance levels
4. Risk Management: Effective risk management is crucial for long-term success in trading. Consider using a position sizing calculator to determine how many shares to trade based on your account size and risk tolerance. A common guideline is to risk no more than 1-2% of your entire capital on a single trade.

Final Thoughts

The OHL strategy is a simple yet powerful approach for intraday trading. By following structured entry, exit, and risk management rules, traders can maximise profitability while minimising risk. Always back-test your strategy and follow strict risk management principles before applying it to live trades.

Use the OHL strategy, use screening tools, and apply disciplined trading practices to gain an edge in the stock market. Happy Trading!

Disclaimer: Trading in financial markets involves significant risk, and past performance is not indicative of future results. Always trade within your financial capacity, and consult with a professional financial advisor if needed. The information in this article is for educational purposes only and should not be considered financial advice.