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 above previous day’s range with a huge gap up and responsive sellers immediately took advantage of this gap up open and pushed prices back inside previous day’s range after which the prices never recovered and traded below PDH for the entire day. Now, this is a clear rejection of prices in Nifty from higher levels, so bulls have to overcome this rejection for any move higher. Also, sellers were not able to follow through below PDL, so it becomes important to see today if there is a follow through below PDL or not. After the initial rejection above PDH, the sideways consolidation within previous day’s range adds one more day to bulls exhaustion. In case prices fail to trade below PDL, we can expect one more day of sideways move unless buyers are strong enough to take prices above PDH.
What can be expected now:
There was a strong rejection in Nifty from higher levels which marks the entry of sellers but sellers were not able to take prices below PDL yesterday and we need to see if they succeed today or not. In case they fail, we can assume all this moves are by smaller timeframe participants and therefore we do not have much clarity yet. Also, VIX is rising which tells us to be cautious.
PDH (18088) , POC (17870) and PDL (17805) are important levels from previous day’s range. Above PDH is uncharted territory and in case prices accept above PDH, bulls will clearly have the control. Below PDL, prices can test virgin POC at 17742 and below which, price can close gap testing 17618 levels.
Trade plan for today:
Prices are expected to open inside previous day’s range and there is no clarity at open auction. Also, there will not be much clarity if prices continue to trade within previous day’s range, so I will stay out in start and will re assess the market after IB range formation. In case prices trade, below PDL, I might look for a short trade and in case prices reject below PDL, I might look for long trade, So, PDL is a crucial level to watch out for price action today.
- No long trades if prices trade below PDL.
- No Short trades if prices trade above PDL.
- Nifty had a clear rejection but in Banknifty the value area has moved up. This means both indices are not in sync which adds up to the confusion. SO, its better to be cautious or stay out till this confusion resolves.