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, Banknifty opened with a big gap down and sellers took the prices down aggressively in the start to test swing low . But sellers were not able to break swing low decisively and responsive buying that provided support to the prices took Banknifty back above IB high forming a Normal distribution day. Similar to Nifty, there are two things to observe, yesterday’s gap down left a gap which is sellers area, so there can be a selling from anywhere in the gap area which is above PDH. Also, sellers failed to push prices below swing low, which means for now, there might be a higher timeframe supporting prices below swing low or PDL. So, there is no clarity unless we clearly start accepting above PDH or below PDL. On higher timeframe, the control is with sellers due to yesterday’s big gap down but if this gap gets filled, then we have to be cautious about the strength of sellers as they would have then clearly failed to defend the gap.
What can be expected now:
We need to see today if we get a follow through from the responsive buying we saw throughout yesterday from IB low to IB high. There can be a spike but acceptance over larger time is what matters, In case prices start accepting above PDH, this is not good for sellers. Similarly, Prices accepting below PDL is not good for buyers and we can see another good downmove. Prices accepting inside previous day’s range can trade sideways with a downward momentum.
PDH and PDL are the levels to look out for from previous day’s range. Above PDH , we can try to test levels of 32000 to close the gap and below PDL, we can test 30000 levels. Also, in case if acceptance below PDH or rejection above PDH, we can see prices moving sideways to down and probably test the area near POC.
Trade plan for today:
Banknifty is expected to open near PDH and there is not much clarity on open auction and we might probably see a stuggle at open. So, we need to see if prices are getting accepted or rejected above PDH and then decide on the direction on the trade. If nothing is clear and there is volatility, I will probably wait for IB range completion to look for a trade.
- Short trades are risky if prices above PDH.
- No long trade if prices trade below PDH.
- Strength or weakness of Nifty becomes very important for Banknifty today. For taking a trade in either direction, we just need to make sure Nifty price action is also supporting the trade.
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.