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ODD LOT BALANCING

ODD LOT BALANCING. ODD LOT BALANCING. The odd lot balancing index (“OLBI”) is a market sentiment indicator that shows the ratio of odd lot sales to purchases. An odd lot is a stock transaction of less than 100 shares.

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ODD LOT BALANCING

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  1. ODD LOT BALANCING

  2. ODD LOT BALANCING • The odd lot balancing index (“OLBI”) is a market sentiment indicator that shows the ratio of odd lot sales to purchases. • An odd lot is a stock transaction of less than 100 shares. • It is assumed that ,odd lotters, the markets smallest traders, don’t know what they are doing.

  3. INTERPRETATION • When the Odd Lot Balance index is high, odd lotters are selling more than they are buying and are therefore bearish on the market. • To trade contrarily to the odd lotters, you should buy when they are selling and sell when they are buying. • You can have smooth day-to-day fluctuations of the Odd Lot Balance index by plotting a 10-day moving average of the index.

  4. ODD LOT BALANCE • Some brokerages charge higher commissions for odd lot transactions, (often 1/8 of a point per share, called the odd lot differential). • A round lot is the normal trading unit. The round lot comes in multiples of 100 shares. Round lots are sometimes referred to as a normal trading unit.

  5. ODD LOT BALANCE • Calculation odd lot sales odd lot purchases

  6. ODD LOT THEORY • An investment strategy that assumes small investors are always wrong because they react emotionally to the market and are usually guilty of bad timing.

  7. ODD LOT THEORY • In a rising market, a lot of odd lot buying is considered an indication of a technical weakness in the market and a signal to sell. • In a declining market, a lot of odd lot selling is seen as an indication of technical strength and a signal to buy.

  8. ODD LOT THEORY • Studies of odd lot trading, however, have proven that this theory doesn’t have much substance and that investors trading odd lots of market leader stocks Round Lot. • This is true because in some of the inactive stocks a unit of trading is 10 shares instead of 100.

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