Abbreviations I use in the post: PDH: Previous day’s high, PDL: Previous day’s low, IB: Initial Balance or First 1 hour range, NVD: Normal variation day (one of the market profile day types), OTD: open test drive, POC: Point of control
Observation from previous day:
On Friday, Nifty opened above previous day’s range and tested PDH. After some initial struggle, buyers pitched in and moved Nifty above PDH decisively making OTD up at PDH. Thereafter Nifty started one time framing upside for sometime after which it moved sideways followed by an up move in the end. Though there was a directional move on the upside, it was not very convincing as the consolidation in mid range seems like absorption of supply (which also means there is supply coming in) although buyers were stronger. Also, if you look at Banknifty, it moved entirely sideways in narrow range in spite of Nifty being strong. These are subtle signs of warning but these are just warning and do not signal a trend reversal or high formation. Trend reversal and high formation can be seen only after they happen and not before.
What can be expected now:
Any acceptance above PDH would be good for bulls but we need to be careful about the trade facilitation on the upside. In case we enter a long trade, it would be good idea to keep a tight watch and trail stop loss whenever possible. Rejection above PDH is not good for buyers but looking at the last few days, the sellers are also from shorter timeframe, so it becomes difficult to trade on short side. So, better to be cautious and trail tight in case of short trade also.
Trade plan for today:
Nifty is expected to open above previous day’s range and I do not have any clarity at open auction, so, I will wait and watch to see if prices are getting accepted or rejected above PDH and later see how is the trade facilitation. On in case of certain clarity and a good entry, I would be opting for a trade today otherwise I will just watch and stay out.
- Watch out for trade facilitation above PDH. In case of buyer’s exhaustion, there is always a chance of sharp breakdown.
- No longs below PDL and no shorts above PDH. Also, in case of no proper entry, better to stay out.
Please note that this is a personal view for learning , observational and education purpose and is not a trading recommendation. Trading futures carry a risk, so you should consult a financial expert before taking any risk. Also, Nifty in above statements Indicate Nifty future for current month and not Nifty index.