What is the Put-Call Ratio
The put-call ratio is an indicator ratio that provides information about relative trading volumes of an underlying security's put options to its call options. The put-call ratio has long been viewed as an indicator of investor sentiment in the markets, where a large proportion of puts to calls indicates bearish sentiment, and vice versa. Technical traders use the put-call ratio as an indicator of performance and as a barometer of overall market sentiment. Put-call ratios on broader indexes such as the S&P 500 are also used as more general gauges of market climate.
Put-Call Ratio Interpretation
One way to interpret the put-call ratio is to say that a higher ratio means it's time to sell and a lower ratio means it's time to buy, because when the ratio is high it suggests that people are either expecting or protecting more readily against a future decline in the price of the underlying. A Put-Call ratio between 0.5 and 1 is considered a sideways trend in the markets.
Some also view the Put-Call ratio as a contrarian indicator. Traders know that derivatives are used to do more than place bets; they are used as hedges and insurance. If there's a lot of insurance being placed to the sell side, it means traders are worried about prices falling.
Some traders buy when the put-call ratio is above 1, meaning the market is out of balance to the sell side, and sell when the put-call ratio is below 1, meaning the market is out of balance to the buy side. These traders are looking to make money on the correction. The interpretation of the ratio is left to the analyst's or trader's investment philosophy.
Reference : Investopedia (www.investopedia.com...s/p/putcallratio.asp)
Let' s start.
In short, calls represent "bulls" and puts represent "bears".
Some analysts do the opposite,for trend reversals the choice is up to you.
I usually look at the opposite comments in commercial positions because I look at this flow angle neutral.
If you want to do the opposite, you must create Put / All Ratio.
So i created this ratio to observe easily movements under or over 0.50 area .
Or you can take the point close to 0.50 as a horizontal trend. Many more comments can be made.I have a few ideas about this, and I'm going to publish them soon . My best suggestion is that it covers a single bar and is very volatile, so you can look for averages and strong accelerations.
This code is open source under the MIT license. If you have any improvements or corrections to suggest, please send me a pull request via the github repository github.com/user-Noldo
Stay tuned , best regards.
Yellow area : Stagnant Market ;
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.