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, Nifty opened inside previous day’s range near POC and there was a struggle between bulls and bears in the start which continued entire day. As expected, prices moved sideways due to expiry but the bias in the second half was downwards and this consolidation near the PDL is not good for buyers as strong rejection that was expected is missing. As a result, the down move is expected which looks like will happen with a gap down today due to overnight bearishness in overseas markets. So, what we need to observe today is whether there is any support after the gap down and prices reject lower levels, or sellers continue moving prices down even after a big gap down open.
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 Nifty. Virgin POC 17420 and Swing low 17334 are support levels on downside but its not good to catch a falling knife.
PDH (17740) and PDL (17580) are important levels from previous day’s range. Above PDH, we can test poor high at 17790 and below PDL, prices can test virgin POC at 17420 and swing low at 17335.
Trade plan for today:
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. 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.