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 Thursday, Banknifty opened above previous day’s range and buyers tried to take prices up at open with OTD up. Usually this type of open auction results in a good upmove, but above PDH buyers were not able to follow through to the upside. It can be interpreted as buyers were from short timeframe and have encountered a higher timeframe selllers at the high whose selling they were not able to overcome. After this prices moved back into previous day’s range and broke IB low forming a NVD to down side but all prices action in Banknifty happened inside previous day’s range. With this, we can assume sellers are in control until prices trade below PDH and there is no point looking for a long trade in case prices are not able to break above PDH. Adding to it, prices trading below PDL is not good for buyers and sellers might bring prices down and again try to break the higher timeframe support at swing low.
What can be expected now:
Banknifty is weaker than Nifty and PDH/PDL level is the level to watch out for and see if prices are accepting above PDH or below PDL. Above PDL is bullish and below PDL is bearish. Also, decisive break of PDL can bring a good down move.
PDH and PDL are the levels to look out for from previous day’s range. Acceptance below PDL can bring a good down move in Banknifty.
Trade plan for today:
Banknifty is expected to open inside previous day’s range and I will for IB range formation in case prices does not break PDL at open. Only in case prices break PDL decisively, i might look for a short trade but this also can be risky , so I will trail my stop loss tight. Once prices get accepted below PDL, they should not come back inside previous day’s range else we can assume continuing struggle between buyers and sellers which is not good for directional trades. So, in that case, we can ignore further trades.
- Short trades are risky if prices trade above PDL.
- No long trade if prices trade below PDL .
- Also, watch out for strength/weakness in Nifty.
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.