Mr. Nitin Murarkar, a Chartered Accountant with expertise in derivatives and index option trading, discussed some essential concepts related to market behavior and participants in option trading in the session. He emphasized that option trading is a zero-sum game, meaning for every buyer making a profit, there must be a seller incurring a loss. He highlighted the existence of strong hands (FI’s, DI’s, and proprietary funds) and weaker hands (retailers) in the market. The money typically flows from weaker hands to stronger hands, resulting in 95% of people losing money in this market.

Mr. Murarkar also touched upon the significance of understanding crowd behavior in the market. Market movements often go against the crowd’s expectations. He pointed out that only about 1% of the crowd pays attention to participants-wise open interest data, which could provide valuable insights into market dynamics.

As of the current situation, the NIFTY is at approximately 17,500. Mr. Murarkar mentioned that FI’s are long in the market, but the specific long-short ratio was not disclosed.

Mr. Murarkar emphasized the importance of analyzing participants-wise open interest data to identify the prevailing long-short ratio. This ratio provides valuable insights into the market sentiment and indicates which side the bigger hands, such as FI’s and DI’s, are taking. He cited an example where a long-short ratio of 3x would suggest that the stronger hands are on the short side.

As retail traders, the audience was made aware of the formidable opponents they face, including influential names like Rakesh Jhunjhunwala, Ramesh Damani, and big institutions like mutual funds and FI’s like Morgan Stanley and George Soros. Understanding their strategies and market moves is essential to enhance the probability of successful trades.

Mr. Murarkar warned the audience about the intense competition and stop-loss hunting that takes place in the market, orchestrated by big hedge funds and professional traders. He described the technique of stop-loss hunting through a visual representation of a red candle bunny, depicting how market movements can be manipulated to trigger stop-loss orders before the market reverses direction.

He explained that when there is a reversal sign on the lower band of the Bollinger Bands, it often indicates stop loss hunting. In such scenarios, the market initially triggers stop-loss orders placed below the lower band, leading to a sudden reversal and subsequent rally.

To avoid falling victim to stop loss hunting, Mr. Murarkar provided valuable advice. Firstly, he emphasized the importance of placing stop-loss orders at strategic levels. By plotting the volume profile on a chart, traders can identify volume clusters, which represent levels with significant trading activity. These clusters act as magnets for price movements. To safeguard against stop loss hunting, traders should place their stop-loss orders just below these volume clusters. By doing so, they are less likely to fall prey to manipulative market movements that trigger stop-loss orders and then reverse.

Moreover, Mr. Murarkar advised traders to observe volume clusters from the previous trading day and the current trading session if they are trading intraday. The point with the highest volume concentration becomes a crucial reference level for placing stop-loss orders.

By adopting this approach, traders can protect their positions from unnecessary losses caused by stop-loss hunting and make more informed decisions in the market. Understanding the dynamics of stop-loss placement and the significance of volume clusters allows traders to navigate the market with greater confidence and reduces the risk of falling victim to manipulative trading practices.

To access participants-wise open interest data, Mr. Murarkar suggested searching for the information on the NSE website or using relevant search terms like “participants wise open interest data historical” on search engines. By doing so, traders can obtain data regarding the total outstanding positions of four main participants: retail clients, domestic institutions (DIs), foreign institutions (FIs), and proprietary traders.

Analyzing the data obtained for each participant, Mr. Murarkar illustrated its significance by using Friday’s index data as an example. The data revealed the long and short outstanding contracts for each participant, allowing traders to gauge their overall positions in the market.

For instance, retail clients had 2,52,000 long contracts and 1,77,000 short contracts, indicating a long-short ratio of 1.45. DIs, on the other hand, held 42,000 long contracts and 1,00,000 short contracts, resulting in a net short position and a long-short ratio of 0.42.

The most significant data came from the FIs, who had a staggering 95,000 short contracts and only 37,000 long contracts, leading to a long-short ratio of 0.39. This data indicated a strong bearish sentiment among FIs and proprietary traders, suggesting that the market might go down.

He emphasized the significance of participants-wise open interest data, which sheds light on the positions of different market players, including retailers, DIs, FIs, and proprietary traders.

By analyzing this data, traders can gauge the sentiment of each group and align their trades accordingly. For instance, if retailers have a higher long position and FIs have a considerable short position, it indicates a bearish sentiment in the market. In such scenarios, traders can adopt a more aggressive approach when selling and be defensive or trade in smaller quantities when buying.

To access this data, traders can search for “participants-wise open interest data” on the NSE website or relevant search engines. The data is available for the index and option contracts, providing valuable insights for trading decisions.

Mr. Murarkar highlighted the importance of change in open interest data in the option chain. This data reflects the capital required to create each position, and changes in open interest can indicate market sentiment shifts. By focusing on strike price, last open interest, and change in open interest, traders can gain early indications of market trends.

Furthermore, he advised traders to compare the option chain data with participants-wise open interest data to gain a comprehensive understanding of the market dynamics. By combining technical charting tools like Bollinger Bands, RSI, and moving averages with this market data, traders can enhance their trading confidence and make more informed decisions.

Mr. Murarkar discussed the change in open interest data from the option chain and highlighted the importance of analyzing call side and put side open interest changes separately. By comparing the two, traders can discern the prevailing sentiment in the market. For instance, if there is a substantial difference between call side and put side open interest changes, it indicates a biased sentiment. This data is crucial because it signifies where positions are being created in the market.

Furthermore, Mr. Murarkar delved into the buying and selling probabilities of options. He explained that while selling options can be more profitable due to higher winning probabilities, many retail traders lack the necessary capital for such trades. Therefore, they often resort to buying options, even though the odds of winning as a buyer are lower.

To determine the sentiment and potential market direction, traders should focus on the difference in open interest changes and track its movement over time. This will provide insights into how the market sentiment is evolving and whether it aligns with or diverges from the crowd’s perception.

Moreover, Mr. Murarkar challenged traders to identify an indicator that could gauge market sentiment at 9:30 a.m. He encouraged them to look beyond conventional technical tools like Bollinger Bands and chart patterns and search for indicators that could offer early indications of market sentiment during the early trading hours.

He introduced a unique indicator that traders can use to gauge market sentiment at 9:30 a.m. This indicator is based on the change in open interest from the option chain, specifically focusing on call side and put side open interest changes. By comparing the two, traders can determine the crowd’s sentiment and potential market direction.

Mr. Murarkar emphasized the importance of tracking the trend of this data as the market opens. If the call side open interest change significantly outweighs the put side, it suggests a bullish sentiment among the crowd. Conversely, if the put side open interest change dominates, it indicates a bearish sentiment. This information is valuable in determining the initial market sentiment and aligning trading strategies accordingly.

While this indicator provides valuable insight into the crowd’s perception, Mr. Murarkar stressed the need to combine it with technical analysis and chart patterns. Traders should not solely rely on this data for making trading decisions but rather integrate it with other tools to enhance their trading accuracy.

Furthermore, he highlighted the importance of participant-wise open interest data, which reveals the positions of different market players, including retailers, DIs, FIs, and proprietary traders. By analyzing this data, traders can identify the actions of stronger hands and the retail crowd. Combining this information with the change in open interest data from the option chain can lead to a more comprehensive understanding of the market sentiment.

Mr. Murarkar also mentioned that when FI’s have a significant short position, and the PCR (put-call ratio) is negative, traders can have more confidence in trading in put options. On the other hand, a positive PCR may lead to more cautious trading decisions. By observing the slope of the PCR data and how it evolves throughout the trading session, traders can gain insights into the changing sentiment of the crowd and make more informed trading choices.

Traders should carefully consider their entry and exit points, ensuring that their stop-loss levels are strategically placed below volume clusters. The key takeaway is to enter at a price closer to the cluster level, reducing the risk of stop-loss hitting due to sudden price fluctuations.

Another crucial aspect is to analyze the open interest data for participants regularly. Traders need to pay attention to whether the overall ratio is above or below 1. A ratio greater than 1 indicates a buy-on-dip market, while a ratio less than 1 signals a sell-on-rise market. Combining this data with charting tools and technical indicators can significantly enhance trading accuracy.

Mr. Murarkar also warned against the practice of averaging down in options trading. Averaging down can lead to significant losses and erode the trader’s capital. Instead, it is crucial to adhere to a well-calibrated stop-loss strategy and avoid averaging options that are in a losing position.

Furthermore, he encouraged traders to specialize in a select few stocks or instruments. Trading in multiple stocks can lead to confusion and lack of expertise. By focusing on a limited number of stocks, traders can gain deeper insights into market behavior and make more informed decisions.

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