Why Put/Call Ratio Is An USELESS indicator

In options trading, there is an indicator used by many people including the main stream media called the Put/Call ratio.

Put/Call Ratio reflects the ratio between the amount of puts and that of calls traded on any given day.

The popular way to use this indicator is to look at the ratio itself.

If the ratio is higher than 1 or Put is higher than Call, it is a bearish sentiment. There are more bets on market downturn than those bullish ones.

Otherwise, if the ratio is lower than 1 or Call is higher than Put, it shows a bullish trend.

I am here to tell you this is a completely wrong way to trade and Put/Call ratio is a completely USELESS indicator.

As I said Put/Call ratio merely reflect the amount of Puts and Calls that traded on a day.

It doesn’t tell you how many long and short positions got filled at all.

Long Puts is bullish but shorting it is bearish. So is for Calls. The same instrument but has significantly different market outlooks.

This ratio only tells you half of the picture and should be paid attention to when trading at all.

Instead, you should study closely into more reliable technical trading methodology such as Fibonacci summation series, Elliot Wave and DMI.

Trading is no get rich quick scheme. It takes time and effort as well as continuous education and practices.

But once you get there, you know it is really worth your sacrifices.

Happy Trading,