How To Setup A Put-To-Call Ratio Chart In Tradingview
This video shows you how to setup up a put-call ratio chart in Tradingview, and discusses why you should use it as part of your analysis
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We have a quick question from a new subscriber asking how they can setup a Put to Call Ratio chart in Tradingview, they saw us referring to this a couple of times in our videos today and just wants to know how to set it up in Tradingview and why we use it in our analysis.
Firstly, as always thanks for the question. The reason why we love all the questions you guys give us is because it provides us with an opportunity to create videos that can benefit our entire community, so please keep those questions coming.
Right, so let me show you how easy it is to setup up a put-call ratio chart in Tradingview first, and then we’ll discuss why we use it as part of our analysis. So, just a quick basic understanding of puts and calls will be helpful here, so let’s discuss that first.
A put option, when a trader buys a put option, it gives them the right, but not the obligation to sell the asset they are buying the put option on at a predetermined price. So, they will profit from their trade if the asset they are buying the put option on goes down in price or value. Now, keep in mind, a put option isn’t only a way to profit from price going down, it’s also a way that investor or traders who are already long on that asset can hedge against the possibility of the price going down.
A call option, or when a trader buys a call option, it gives them the right, but not the obligation to buy the asset they are buying the call option on at a predetermined price. So, they will profit from their trade if the asset they are buying the call option on goes up in price or value. Now, keep in mind, a call option isn’t only a way to profit from price going up, it’s also a way that investor or traders who are already short on that asset can hedge against the possibility of the price going up.
Right, so on to the chart. Just open up an Tradingview chart, and in the search bar you can type in Put Call or Put Call Ratio and you’ll see a couple of options, but I prefer to just type in PC that gives me the Total Put Call Ratio Composite which is the one that I prefer to use, and then to make it easier to read you can maybe just change it to a line chart as candles will be a bit messy with this one.
So, the basics of this. You are essentially looking at the ratio, between puts and calls in the market, so a value of 1 on the put call ratio means that there is equal amount of puts and calls. So, as you move above 1, that shows there is more puts than calls, and as you move below 1 that shows there is more calls than puts.
Now, after you understand what the difference is between a put and call, then you know that a move higher that shows more puts than calls means the market is more bearish, and if you see a move below 1 showing more calls than puts that means the market, in the options space at least, is more bullish. The ratio is a lot more important to markets when we reach extremes at either end, because it shows a lot of complacency to either the up or the downside, and is mostly used as a contrarian indicator when it reaches extreme levels.
However, it can also be used to signal a change in sentiment if for example it has been at either end of the extremes for a long time and then suddenly pushes into the opposite territory. So, if the market, like this is showing right now is complacent to the upside for stocks, if we do see a correction in equities and the ratio reaches close to 1 again, that can be seen as bullish for the those that are bullish as it means that the weaker long hands are shaken out of the market.
But like any indicator in the market, the ratio isn’t perfect, and it is best used as an additional part of your analysis. Because remember, the market can remain fearful or greedy for much longer than you can remain solvent, so it’s not something that you use to try and catch a falling knife with, it’s just another part of a well-balanced analysis process.
So, hope that helps, and any other questions please don’t hesitate to let us know.
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If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
-----
We have a quick question from a new subscriber asking how they can setup a Put to Call Ratio chart in Tradingview, they saw us referring to this a couple of times in our videos today and just wants to know how to set it up in Tradingview and why we use it in our analysis.
Firstly, as always thanks for the question. The reason why we love all the questions you guys give us is because it provides us with an opportunity to create videos that can benefit our entire community, so please keep those questions coming.
Right, so let me show you how easy it is to setup up a put-call ratio chart in Tradingview first, and then we’ll discuss why we use it as part of our analysis. So, just a quick basic understanding of puts and calls will be helpful here, so let’s discuss that first.
A put option, when a trader buys a put option, it gives them the right, but not the obligation to sell the asset they are buying the put option on at a predetermined price. So, they will profit from their trade if the asset they are buying the put option on goes down in price or value. Now, keep in mind, a put option isn’t only a way to profit from price going down, it’s also a way that investor or traders who are already long on that asset can hedge against the possibility of the price going down.
A call option, or when a trader buys a call option, it gives them the right, but not the obligation to buy the asset they are buying the call option on at a predetermined price. So, they will profit from their trade if the asset they are buying the call option on goes up in price or value. Now, keep in mind, a call option isn’t only a way to profit from price going up, it’s also a way that investor or traders who are already short on that asset can hedge against the possibility of the price going up.
Right, so on to the chart. Just open up an Tradingview chart, and in the search bar you can type in Put Call or Put Call Ratio and you’ll see a couple of options, but I prefer to just type in PC that gives me the Total Put Call Ratio Composite which is the one that I prefer to use, and then to make it easier to read you can maybe just change it to a line chart as candles will be a bit messy with this one.
So, the basics of this. You are essentially looking at the ratio, between puts and calls in the market, so a value of 1 on the put call ratio means that there is equal amount of puts and calls. So, as you move above 1, that shows there is more puts than calls, and as you move below 1 that shows there is more calls than puts.
Now, after you understand what the difference is between a put and call, then you know that a move higher that shows more puts than calls means the market is more bearish, and if you see a move below 1 showing more calls than puts that means the market, in the options space at least, is more bullish. The ratio is a lot more important to markets when we reach extremes at either end, because it shows a lot of complacency to either the up or the downside, and is mostly used as a contrarian indicator when it reaches extreme levels.
However, it can also be used to signal a change in sentiment if for example it has been at either end of the extremes for a long time and then suddenly pushes into the opposite territory. So, if the market, like this is showing right now is complacent to the upside for stocks, if we do see a correction in equities and the ratio reaches close to 1 again, that can be seen as bullish for the those that are bullish as it means that the weaker long hands are shaken out of the market.
But like any indicator in the market, the ratio isn’t perfect, and it is best used as an additional part of your analysis. Because remember, the market can remain fearful or greedy for much longer than you can remain solvent, so it’s not something that you use to try and catch a falling knife with, it’s just another part of a well-balanced analysis process.
So, hope that helps, and any other questions please don’t hesitate to let us know.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
