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, Nifty opened inside previous day’s range and after sellers failed to take prices below PDL, responsive buyers pitched in and took prices upside one time framing up. Though this up move looks good in hindsight (after the even has happened), this was happening with good swings and was not easy to trade unless you have a higher risk appetite. Also, with this up move, the selling gaps that we had in the down swing are now filled. Though, there is a very good indication of upside momentum, this type of rise in one day is not a healthy up trend, so we can be cautious of may be wait for prices to settle.
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 (14400) , VWAP (14035) and PDL (13700) are the levels to look out for from previous day’s range.
Trade plan for today:
Nifty is expected to open above PDH and there is not much clarity at open auction. I will wait and watch for price action above PDH and only in case prices are accepted back inside previous day’s range, I would be looking for a short trade otherwise not. Also, I will be taking less position size if at all I get into trade as I am expecting wild swings to continue. Otherwise, in case of any confusion, it is better to stay out.
- Watch out for trade facilitation above PDH. In case of buyer’s exhaustion, there is a chance of prices getting rejecting and we might come inside range.
- No short trade if prices are above PDH. Also, Bank nifty is stronger than Nifty and has broken to all time high, so keep watch on that.
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.