iCharts Discussions

[Ravi_S]

Today after market hours I was browsing through one of the website called "Money can't roll" . The headlines was "Short covering adds 359 pts on Sensex at close. I have the following doubts regarding short covering and need experts advice.

1. How does one know whether Short Covering has taken place or fresh buys have been initiated?
2. What exactly is this Short Covering? I've heard this so often when the market is down but have not heard something like "Long Covering". I have a vague idea but would like someone explain how this brings in a spurt in price?
3. If today's rally is really due to short covering, r we expecting further downfall?

I was a victim of short covering today and that's why these questions...

Regards
Ravi

P.S :
PT/Kamal, I think I would be spared as I've not explicitly mentioned the website name here

[rrsekhar]

Ravi Sir,

This is one way of providing lame excuses for one's mistakes. A bear looks for bearish signals and a bull looks for bullish signals and in fact identifies those signals perfectly, even if the market is going against his (her - let's not forget there are a lot of ladies around) position. Money certainly can't roll

regards

rrsekhar

[shekharinvest]

Ravi,

I am attempting with my little knowledge. Hope ppl will correct me.

1. Change is OI gives an idea whether its short covering or fresh buying. If its covering no. of contracts decreases and if it's fresh buying/selling no of contracts increases.

2. Suppose you are short from 6000 and now at 5400 you feel you have reached a support zone how do you book profits ? You will cover your shorts i.e. buy the nifty at 5400 level and neutralize your position. If large no. of ppl cover at a given price a +ve movement in price is observed because of this. Once this group of ppl have booked profit their is less demand hence prices begin to fall.

Short covering can also trigger if your SL is at say 5020 and price moves above this SL, all of a sudden there is a huge buying (simply a large no. of ppl have placed their SL at that price point) prices move up sharply to some extent until all these SL's are covered.

There is no 'Long covering ' the right word is 'Long unwinding ' process is just reverse of above.

3. Today wasn't a short covering rally, I don't think so. Probably on Jan 28, when prices reached 5460 and on Jan 31 at 5420 were the point where ppl booked profit, hence a rally. Probably tomorrow above 5540-50 we may see a short covering rally when SL for shorts are like to be hit for many.

SHEKHAR

[casper]

Hi, I am not an expert, just a friendly ghost, but a few in puts from my side, as i have learned this thing fom my dear "anna"

to see if there is any short covering rally or a true rally (long build-up as they say) perhaps the best way is to se the open interest

the rules are as follows

1. price is going up and OI is increasing means long build up starting means some body is buying (big boys, not like us), thats why OI is increasing, showing that the big boys are having more position in that stock/index and they are getting bullish as the price is hiking

2. price is going up and OI is decreasing, means long unwinding or profit booking starting by big boys, it is seen as the big boys are getting suspicious of the sustainability of the price rise, they are booking profits, which is summarily a bearish indication

3.price going down and OI increasing means, start of short build up, which is a bearish indication, big boys are bearish that why they are shorting like hell

4.price going down but OI decreasing, is the start of short covering by big boys which is a rather bullish sign, as big boys are suspicious about the longevity of down move so they are covering shorts to book profit


under the light of these rules, i think short covering started as early as yesterday or even may be on Monday itself, what we have today, is the finish of short covering by the smart money, who, i believe, (own believe) made some fresh long position also

according to NSE data, i see price zoomed 1.77% whereas OI change is 4.51%, which as i see, is a case of starting of fresh long as well

now i think, up to this, it will answer ur first two questions

for 3rd question, though i am not an expert, but as a regular trader what i feel, due to whatsoever reason we have bounced back after taking support on a important level, had we breach it then 5200-5050 wud have become likely

but the fact is, we have bounced back and now why will we fall if we dont have a negative divergence or a strong resi or a very negative news flow?

i personally feel 200sma is our next stop until we have a negative div or a very bad fundamental development

[rachan03]

Hi! Casper,

really nice tips & views on Open Interest ...since when r u following it & howz the accuracy ....does is work most of the times ...which other indicator u combine with this Open Interest study to make short/ long trade for better accuracy ... also pls share the link where i can check OI figures daily of nifty .... do we also need to check OI of puts / calls ....or just OI of nifty is sufficient ....thanks ..waiting for ur revert ....

regards,
Rachan

[rachan03]

Hi! Casper,

I mostly follow candlesticks patterns & fibbo levels to identify reversal of trend ... today bullish engulfing reversal pattern is also formed in candlesticks chart of nifty & indicators like rsi etc . are also in oversold area ...wuts ur view ...wut stop loss will u keep for long position ....strong resistance comes around 5800 - 5870 ...

[casper]

[casper]

[psri]

Hi All,

I came across this in one of the websites.

The OI, price and Volume are inter-related as follows:

OI/Price/Vol - Up/Up/Up - Bullish
OI/Price/Vol - Up/Dn/Up - Bearish - Short selling
OI/Price/Vol - Dn/Up/Up - Short covering
OI/Price/Vol - Dn/Dn/Up - Weakening market, selling likely to dry up and a bullish phase may begin after that..

I hope this helps. Experts may validate if this interpretation is correct for the benefit of all readers.

[manass]

Thanks psri for this information, but please let me know how I'll get the data for these especially for OI.
Regards

[psri]

OI info I get normally from two sites. but there could be more sites providing that.

1.from integrated securities website..www.cubsharebroking.com..under the tab derivatives/Open Interest. You may not get for all. It shows things in an organised way. once u r in there.. u will understand.

2. from nse website. www.nse-india.com - under the tab
Home > F&O > Market Information > Historical Data > Contract-wise Data

here u will be able to see for any index or stock or option for a day/7 days/15days/30 days or more or for a period. You will be able to compare the data between any two days when it is displayed over the screen. Just try it. it is good.

All the best... but keep in mind that all these data r only guiding factors based on past happenings.. We need to take action based on the interpretation of these data and with what is going on currently in the market.

[singh.ravee]

Ravi Hi,

I am a novice. Earlier I used to track open interest regularly. To the best of my knowledge OI yields nothing. Its another way of confusing others in the market. If need be i can post charts supporting my statement.

Those who use OI may please pardon me for my words. I already told that I am a novice.

U covered reliance around 920. U know what was the biggest surprise for me when u shared this was, "Why he covered on such a bullish candle"?

I dont know whether it was short covering or long unwinding or any change in OI in reliance; what i know is that u were more smart than me to catch it early.

regards

ravee

[casper]

[sherbaaz]

Hi,

Attached is the sheet explaining OI and price behavior with respect to trend. Whether it works or not depends on you. It gives you a bigger picture not the entry points or trading points. It is a supportive tool not the decision tool.

I used to use it and gave me good understanding of wht is happening behind the curtain. No more using it as "TRADING NAKED".

There are many tools one can use to gauge what smart money is doing in the market. As retail traders ODDS are bound to be against us. OI interpretation is one of them you can use to see inside the market. Add volume to you analysis, it gives very good understanding of what is there inside the mkt.

Regards,

DONT KNOW WHAT IS HAPPENING BUT NOT BEEN ABLE TO ATTACH THE SHEET. Kamal sir please look into it this is happening again.

[casper]

its nice to see that from shekhar sir to sherbaz bhai, all are using OI as i do and using it as a support rather than main entry/exit policy

but i will still wait for raveendar's reply, i am sure some thing is wrong in his application of OI

if by my little effort, may i help him to understand the logic then no body will be happier than me

i wont mind even if i dont trade today, becoz RAVEE is simply one of the ichartians whom i really regard as my brother