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 below previous day’s range with a big gap due to bearishness in overseas market. This would have helped sellers who took prices down on the day before to either distribute more and take prices down or to cover up their shorts depending on their timeframe. But after this gap down open, sellers were not able to push prices further down and Banknifty moved sideways for rest of the day forming a non-trend day. Buyer also were not able to push the prices up and close the gap, so there is not much clarity for now if there is a directional move pending. But for now, as entire trading range was below previous day’s range, sellers have the edge unless this gets reversed today.
What can be expected now:
Similar to Nifty, here also, in case sellers have more control than buyers , we can expect sellers to move prices down below PDL or at least sideways indicating more distribution is left. But in case prices start moving upside, this would indicate sellers are not in control and will raise question on sideways movement of Friday being a distribution. Also, even if it was distribution, if prices accept above PDH for a longer time, this distribution can be because of lower timeframe participants which might cover up their shorts later giving more upside push to market . So, whether we accept above PDH or get rejected and move back inside previous day’s range is the key.
PDH (35330), POC (35072) and PDL (35902) are important levels from previous day’s range. Acceptance above PDH can fill gap zone (35330 – 35475) and can also test VWAP levels 35800. Acceptance above 35800 is not good for higher timeframe sellers also. Below PDL , we can test weak lows at 34670.
Trade plan for today:
Looking at SGX nifty, Banknifty is also is expected to open with a gap up above PDH and there is not much clarity at open and many timeframes will be involved. What we need to see if that if prices are accepted above PDH or if they get rejected above PDH and are pushed back inside previous day’s range. Above PDH is bullish and below PDH is bearish. I will wait for IB range formation and then decide on trades. Longs above PDH and short below POC will be my criteria if I get a good entry, otherwise will stay out.
- Short trades are risky if prices trade above PDH
- No long trade if prices trade below PDH.
- Banknifty broke down after lot of consolidation, so we need to see if this gap up spoils seller’s party in Banknifty or if this gap up is just a trap and sellers are still in control. Today’s day is crucial from that aspect.
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.