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 inside previous day’s range near POC and after initial push down by sellers, buyers entered and tried to move price upside but they failed to trade above POC and sellers then pushed the prices down to close at bottom forming a NVD down day. Still the entire price action was inside previous day’s range as expected due to expiry. So, it looks like there is a pending down move which will materialize today with a gap down open. But what we need to really observe is after this breakdown with a gap down, how do prices behave at lower levels – acceptance or rejection. Acceptance of lower level will lead to more fall and rejection might push prices back inside range which will not be good for sellers.
What can be expected now:
We are expecting a gap down open at the start which is initiative selling, so there will be lot of positions adjustments at the open itself which might give volatile move but what we need to observe is if there is any buying coming at lower levels or not. In case gap sustains and bulls fails to close the gap, this will not be good for sellers in higher timeframe also and we might start a new down move in Banknifty. Poor low at 37000 and swing low at 36600 are support levels on downside but its not good to catch a falling knife and we need to see if buying from this support level can arrest the fall or not.
PDH (37900) and PDL (37380) are important levels from previous day’s range. Above PDH, we can test virgin POC at 38075 and below PDL, prices can test poor low at 37000 and swing low at 36600
Trade plan for today:
Similar to Nifty, prices are expected to open below previous day’s range with a big gap down there is no trade at open auction because of this gap down. We need to wait for IB range formation and then look for a trade. Again, Remember on such days, prices show big moves at open and it does not mean all moves are tradeable. Second, although buying dips had been rewarding for last couple of months but this is a very wrong approach (buying dips at open) and you need only one bad day to get a huge dent if you try to catch falling knife, so strictly, no long trade today if prices trade below PDL. In case of IB range formation below PDL , I will look for short trade either at IB breakdown or any buyers exhaustion.
- No long trades if prices trade below PDL.
- No Short trades if prices trade above PDL.
- Both Nifty and Banknifty has been moving sideways from few days and a gap down open today can be seen as breakdown, so we need to see if this breakdown sustains today or not.