How to Use PCR Ratio with Support & Resistance

The Put-Call Ratio (PCR) is one of the most widely used sentiment indicators in the derivatives market. It helps traders gauge whether the market is leaning towards bullish or bearish sentiment. But when you combine the PCR ratio with support and resistance levels, it becomes an even more powerful tool to identify potential market reversals or breakout opportunities.

Understanding the PCR Ratio

The PCR ratio is calculated by dividing the total number of put options by the total number of call options.

PCR Ratio=Put Volume/Call Volume

• PCR < 1: Indicates a bullish sentiment (more calls being bought).

• PCR > 1: Suggests a bearish sentiment (more puts being bought).

• PCR ≈ 1: Reflects a neutral or balanced sentiment.

However, reading the PCR ratio in isolation can sometimes be misleading. That’s where support and resistance levels come in — they help confirm whether the sentiment shift has technical backing.

Combining PCR Ratio with Support & Resistance

1. At Support Levels: When the price is testing a strong support zone and the PCR ratio rises above 1, it could indicate that traders are overly bearish — a sign of a potential bullish reversal. Contrarian traders often look for such setups to buy near the support level.

2. At Resistance Levels: When the price is approaching a key resistance area and the PCR ratio falls below 0.8, it may suggest excessive bullishness. This often precedes a pullback or correction as traders start booking profits.

3. PCR Divergence with Price: If the price makes a new low but the PCR ratio doesn’t rise accordingly, it could indicate bear exhaustion. Similarly, if prices make new highs but the PCR ratio doesn’t drop, it signals bull fatigue — both conditions can precede reversals at major support or resistance zones.

Practical Example

Suppose Nifty 50 is trading around a crucial support at 22,000, and the PCR ratio jumps to 1.3. This suggests excessive pessimism despite the market holding above support. If the index forms a reversal candle (like a hammer or bullish engulfing), it could be an ideal setup for a bounce trade.

On the other hand, if Nifty is at 22,800 resistance with a PCR ratio of 0.7, the market could be overbought — a potential signal for short-term caution.

Using the PCR ratio with support and resistance offers a balanced blend of sentiment and technical analysis. While PCR tells you what traders feel, support and resistance reveal where the price reacts. Together, they provide high-probability setups that can help you anticipate reversals and manage risk more effectively.