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, HVN (High volume node)
Observation from previous day:
On Monday, Bank nifty opened inside previous day’s range near PDH and after some initial absorption of supply, buyers were able to take prices upside one time framing up. Relatively Bank nifty was stronger than Nifty and even though a long trade looks good in Bank nifty in hindsight, I was not trading due to event (Budget). But since this was a very big up move, we need to see and observe the price action to judge as to what caused this up move. The momentum for now is on the upside and prices should not come below PDL for buyers to be in control in higher timeframe.
What can be expected now:
We need to see if this up move was a result of higher timeframe sellers covering their short positions or not. In case they have covered, price is likely to stay above PDL and after some sideways move, we might see upswing resuming. But , in case we go back and test PDL, this would mean that yesterday’s big move upside was only emotionally event driven by short timeframe buyers and will not carry any significance. So for now, what we can only do is observe the prices action for some days and then take a decision..
PDH (33475) , VWAP (32130) and PDL (30935) are the levels to look out for from previous day’s range.
Trade plan for today:
Banknifty is expected to open above PDH and there is not much clarity at open auction. I will wait and watch for price action in Banknifty and possibly skip any trades in Banknifty as it is clearly above my risk appetite. Also, in case of short trade, i do not want to go against a strong momentum and in case I get good opportunity, I will be looking for a short in nifty and not Banknifty.
- Watch out for trade facilitation above PDH. In case of buyer’s exhaustion, there is a chance of prices getting rejecting and sellers dominating.
- No short trade if prices are above PDH is a thumbrule. If any one did not folowed it yesterday, he would have lost good money.
- Banknifty is now at all time high, so above PDH is uncharted territory and we need to see how prices behave there.
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, Banknifty in above statements Indicate Banknifty future for current month and not Banknifty index.