The day was the exact opposite of yesterday right from the opening price.
Using the OrderFlow and the simple message from Market profile , we were quick to add 75 points in the NF and 300 in the BankNifty to the 110 and 350 we made yesterday.
If yesterday's charts posted here had price below vwap and dpoc , today it was just the opposite.with buyers picking up every touch of either vwap or dpoc.
As discussed in the morning post, the broader market seems to be in a consolidation zone and it would pay to play for short moves and take quick profits.
Here is a profile and vwap chart of the NF march contract from the time the seller took control at 5680 NF on the 22nd.
The chart shows the vwap currently at 5486 which is also the settlement price for the series of last month.
The sellers will always be in with a chance as long as price stays below this point during the month.
The profile for the same period shows a move which is back in value after the sell off yesterday. We also spoke about the pull back high of 5399 which has been crossed by the buyers and the market has hit 2IB at 5444 currently.The lower value area stands now at 5390.
Below that declining vwap, the seller will continue to exert control.
We had a trend day in the markets today as the markets opened below value of Friday and kept selling through the day. Such types of days have an open at one end and a close at the other with a pull back high (low) in the afternoons.
To be honest, the day type was a bit difficult to call in the first session primarily because we had a larger than normal IB which in the majority of cases is a clue that the initiative activity may be over and one should be looking out for responsive behavior. So we were looking for some buying strength at 5426 and 5404 as I was saying on my twitter tab earlier.
However the charts never lie and the day's auction showed a declining VWAP and a declining dpoc which meant that all buying efforts were progressively snubbed out.
Let's have a look :
I work out of these charts and the same are available in the trading room. It shows a steady move down from the open of Friday and enough to keep us on the right side of the trade which in this case was down. That sell signal from Friday is already up 180 points.
The chart also is a good reminder to what I tell often- Follow the message of the market. Anticipating is good and looks great when it comes off, but betting heavily on anticipation without the market confirming the move is a stepping stone to disaster in your trading account.
We follow simple rules . Below vwap and value, it's the seller who controls and above value and vwap it's the buyer.
Here are the same rules applied to the bankNifty :
For tomorrow's session the pull back highs of 5399 and 10375 will be watched. This market will remain a sell till those levels are not taken out.
Here is the chart of the NF March.
The balance profile on the left is for the week dated 6th Feb to 12th Feb.
It is identified by 2 heavy volume zones near 5426 and 5404 respectively. Expect the market to slow down here as the heavy volumes show the market taking a liking to price behavior here.
Here is the updated chart at the close of trading today.
This chart was posted in the morning here : https://www.vtrender.com/content/profile-check-2402
We had mentioned that the odds of a rotation were higher to fill up the low volume zone.
The chart on the right shows the profile completing the auction in the low volume zone.
We also had a good bounce from the HVN at 5456 which turned into the low of the day.
Looking ahead we are having a close below the weekly value area low in the Nifty future for the first time in weeks.
Here's a split profile of the same:
The greyish white zone on the right is the value area and the purple zones are the volumes transacted..
As mentioned in my tweet this morning, I still see no aggressive selling by market participants only longs booking profits and moving out.This is confirmed by the fact that we still do not have excess at the top of the weekly profile. The selling has been responsive rather than initiative and is not a sign of a trend change.
Intra day weakness on Monday below the HVN of 5454 but there are ample supports below. On the other hand a trip back into the weekly Value zone near 5530 will have shorts running for cover.
Here is a quick look at the NF march futures chart.
On account of expiry yesterday, we have to adjust to a 50 point premium which is the biggest I have seen in months. Never Mind!
The Profile structure and Picture remains the same, regardless of the instrument we trade.
This morning 's move out of the neutral zone has gone to the sellers and it looks at current time ( 11.20) to be a rejection of value from yesterday.
The key will be to stay below VAL at 5516 if that is the case.
Lower down we are seeing a low volume zone and NF did well to penetrate it once straight down and now seems to be rotating back through it gain.
Odds are high that it will auction this low volume zone completely.
In the End, the bears managed to keep the gains from yesterday afternoon and denied the bulls a close at the upper end in an other wise bullish series,
The Close at 5483 was exactly the value high for the series and posted in this chart this morning : Feb series
I want to thank all of you for taking the time to participate and give your views.
We had several entries we received at this link : https://www.vtrender.com/content/feb-2012-expiry
We also had several responses to the mailer we sent out about the same.
We had Justin who came very close to the final closing figure by giving his view as 5488.
But amongst the emails we received, we have a winner who called the closing price to the exact point.
His entry for the contest was 5483 and he is our winner for this expiry Contest.
His name is Sandip Pal and he sent in his entry as Sandy .
Congratulations to you !. You will receive the welcome kit to one month with us at Vtrender Live on Saturday.
For those of you who didn't make it , there's always another series waiting to expire soon.
Reminder– Expiry contest closes at 1.00 pm today. Details to participate are here
As the series draws to a close. It's been bull power throughout.the series.
To put things in perspective, here's a look at value and vwap for the month.
The chart shows :
In the top pane :
a) Vwap line in Orange
b) Standard deviation of vwap in green
c) Value areas for the month in Purple
d) POC in Orange at 5397 (along with Vwap)
e) Upper value area and Lower value area at 5485 and 5101 respectively.
In the middle pane
a) The effective volume is the net difference between buying and selling volumes for the day
In the third pane from the top
a) Open Interest for the NF
In the last pane
a) Total volumes for the day
Here's the same chart through a 30 minute candle, instead of the daily above-
The value areas developed are very important as we enter a new series from tomorrow.
I would be keeping a close eye on the 5580-5600 level to see if the buyers can manage to pull the market above that.
We are running a small contest to call a closing figure for the expiry tomorrow.
The details of the contest are at this link here : https://www.vtrender.com/content/feb-2012-expiry
At the bottom of that post, you will find a tab to post your answer.
You can also go to the Today page and Click on "expiry contest" at the very top.Please give a number ( not a range).
The Prize is one full month of free subscription to Vtrender Live and the trading room.
The winner is the one who comes closest to the settlement price at 3.30 pm. There is at least one guaranteed winner.
Closing time is tomorrow- 1.00 pm.
Here are the updated charts for the Delta values in NF and BN at current time.
How to read chart :
In the first pane, we have the POC of the bar.( value displayed) If the POC is declining, it follows that the market is finding value lower and vice versa.
The next pane is the delta of the bar. Delta is measure as the difference in the volume traded at ask prices and at bids. Thus it breaks down volume at buying or selling volume giving us an insight into whether the market is accumulating or distributing at the prices displayed on screen.
The last pane is the actual volume of the bar measured against the median of previous volumes ( yellow horizontal bars)
If the POC is declining on red delta And volumes are above average then the market is short term down. The reverse is true for upsides.
Nifty ( as of 10.120 am)
BankNifty ( as of 10.20 am)
Here is a chart which shows the delta transacted today.
The top pane has the POC . The middle pane has the delta which is the net of volume traded at ask and bid prices and the lower pane has the volume transacted.
The initial part of the day had good volume, good delta once again showing that buyers are interested at 5570 levels. The delta was very negative when the market was at 5634 levels and price was not able to sustain there.
However in the afternoon session buyers came back again at the POC and the market moved higher.
Here's what was posted on Friday after the market closed at 3.30 pm : Weekly Profile
This morning we had an open which has been in value and range of the previous sesssion.The neutral day on Friday seemed to suggest that some longs were moving out of the system. That is not the same thing as shorts coming in This was also evident in the monthly profile where value did not catch up to price as in the weekly.
Actually value and Price play a game of cat n mouse always with either value moving to price or price moving to value.We watch this through the movement of the DPOC which can tell us where value wants to go.
Let's look at last week's chart again.
The green region is the value created last week. Friday's value high is also in the top end of that zone. So any move above the green zone will give the edge to buyers as new money may continue to move this higher.
The region of 5668 NF has been defended thrice and marks the point where buyers are trying to get in the market again.
We've noted a low volume zone below this which can quickly bring the market to 5644.
5524 will be the third point where the buyer will look to buy the dip again.
Back to today's volume charts :
Through a series of articles I intend to speak to our readers on the different approaches used to make our trading life simpler and whether they give new information and if so whether the information is trade-able.
This article is not about Market profile, though we will get to that subsequently. It's about the one thing we all look at when we start our trading careers- that is indicators. As a new bie trader ( and we all have been there) we need something to understand the movements of price on the screen. The most common way to see what price is actually doing is to apply a set of indicators on the price pane and a few below. Indeed if you have a moving average in the price pane and any oscillator below, it is enough to undertand the movement of price. I've seen charts used by people where they look at a few indicators on the main pane of price and also have a few panes below.The objective seems to to learn the movement of these indicators than of price itself!
By definition, an indicator should be something that should provide statistical values giving clues to the condition or direction of the underying.which in the case of all instruments is price.
Broadly speaking the family of indicators can be divided in two parts:
a) Moving average Based
b) Oscillator Based
Most Oscillators employ moving averages, but because of their position in the lower pane, we will treat it separately.
Moving averages :
All moving averages get updated on the following formula :
MA ( CurrentPrice) = MA ( previous bar) + ( Price – MA(prevbar) ) * ( 2/ n+1)
where n is the period considered for the moving average.
Thus the MA depends on Price and period, The price can be considered to be the close or the high or the low of the bar.
The formula shows that if price is moving steadily up ( or down ) , the differential is always positive and it's the simple reason that most moving averages will do well if the market is in the middle of a strong trend whether up or down.
However the problem happens when the market starts going sideways and the MA starts catching up closer to price. Regardless of the period used in this case, the differential is not big enough and the MA ceases to be a good indicator of market direction.
The charts below is the Nifty spot chart from July 2011.
I've divided the chart into three periods bases on the MA employed which in the case of the chart above is the Exponential 10 day.
Also in the chart above you see a customized stochastic indicator in the lower pane ( more on that later)
In the first green rectangle (1) we have price below the 10 EMA and the market is trending down. You need nothing else to tell the direction which is down in this case.
In the third green rectangle ( 3) we have price above the 10 EMA and the market is showing that it is trending up as long as it stays above the EMA.It is important to note in the chart above as well as the formula that price is trending up and MA confirms that to us and we can safely say that there will be no immediate change in market behavior till the price moves below the MA line in which case it will be safe to assume that the market has stopped trending up.
The Oscillator :
The role of the oscillator has been rather poorly defined to call for overbought and oversold conditions. It's main purpose however is to tell us that the market is in a sideways zone. This can be identified if the oscillator starts making sine waves on charts. The oscillator is measured between a -100 to + 100 level generally and it is this scaling which is responsible for the many problems with this indicator.The market does not recognize an oversold or an overbought state if the liquidity is moving price higher or lower. Indeed when liquidity is strong this indicator stops working in other words it becomes in effective.The utility is a lot more when price is rotating around the moving average as we can see in the second rectangle above. In rectangle 1 and 3 it is in the oversold/ overbought stage as the scaling made has undone it's movement lower and higher.
I have modified the code a bit to give signals one or two days before the actual stochastic does.
The modified code is simply –
(SLOWD * 2 ) – 100 for the slowD and
(FASTD * 2 ) – 100 for the fastD
The periods used for the daily chart are 10,3,3.
I've marked in blue in the second rectangle where the stoch gave good signals.As can be seen it was when the MA was in the sideways mode.
Inference : When the Price is above or below the MA and stays there for the period of the MA used, it is wise to follow only the MA to determine the change in direction. However if the oscillator starts forming sine waves in the oscillator pane, then it pays to stop looking at the MA and consider only the stoch.
There are other ways to detremine if the market is trending or moving sideways- we'll have a look at these in subsequent articles.
I'll be happy to hear your feedback on the indicators you employ.