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 Friday, Banknifty opened just below PDL and there was a quick rejection at PDL and sellers tried to move the prices down aggresively in first 15 minutes but after first 15 minutes of selling, there was no follow through and buyers moved prices back inside previous day’s range. Now, this is a typical case of bear trap or you can say selling climax which would mean there are chances of a swing low being formed which is previous day’s low but this is only valid if prices remain well above previous low and does not go and test PDL. In case prices move on upside above PDH, that would be much better for a clear indication that there are less chances of prices moving lower now. Though Banknifty on Friday kept on moving up and gave an NVD day on upsdie, prices were moving up with lot of struggle. The only thing that is favouring sellers was this struggle by buyers on moving prices up but in case prices get accepted above PDH, that point in favour of Sellers will not be valid.
What can be expected now:
Today, we need to observe where prices are getting accepted. In case prices are accepted above PDH, there can a good movement on upside. In case prices are accepted inside previous day’s range, there can be a sideways movement with upside bias if price continue to trade above VWAP. In case prices move below VWAP, there is a chance of testing PDL and testing PDL is not good for buyers as that would then mean that entire Friday’s rally was just inventory adjustment break on downswing and we might then see lower prices. But for now, buyers have the upper hand in Banknifty.
PDH, VWAP and PDL are the levels to look out for from previous day’s range. Above PDH, we can continue upside and test wek high and poor high levels on upside. Test of PDL is not good for buyers and then if that happens, we might well go below PDL.
Trade plan for today:
Banknifty is expected to open near PDH and there is not much clarity in open auction. We need to see if prices are getting accepted above PDH or not. In case prices accept above PDH, we might see a good upmove but we need to be careful if buyers are exhausted. I am bullish on Banknifty till we trade above VWAP levels and will only look for a long trade in that case. I will look for short trade only if prices fail to trade above VWAP and are accepting below VWAP for a good amount of time.
- Short trades are risky if prices trade above VWAP. This is because we already saw a selling climax on Friday which can prove to be the swing low for quite sometime.
- No long trade if prices trade below VWAP or if they test PDL.
- Observe Nifty also. Nifty was stronger than Banknifty and for any move upside on Banknifty, NIfty needs to move in same direction with strength.
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.