Month: March 2012

Here is an update to the composite profile charts posted on Friday

 

Through the month we have observed the dividing line at 5380 as some kind of a SAR for longs and shorts. It holds the composite POC and the vwap of the big seller from 5674 NF is also there at 5405 (current value)

 

In the chart below I have added another vwap for the seller from 5542 last Wednesday.

 

 

The yellow rectangle shows the range of the new seller from 5442 NF.

 

That vwap band is currently extended at 2 standard deviations off mean which give a 5 % probability to  a new move below current lows.So a small pull back may be due here.

 

Ideally any touch of 5342 above or 5386 even higher should invite new sellers.

 

Both 5342 and 5386 are the High volume nodes ( HVN) of the composite. Today's lows at 5357 was another high volume print , marked in green on the chart.

 

In the trading room we were prepared for it

 

[12:28] Shai C: 5243 is RE tgt, but 5260 is a HVN and should give a pause

 

I received a mail from a reader on why I do not track moving averages on charts. The truth is that if there is a MA associated with any price which does not have volumes showing up, the market would not pay any attention to it, or to put it in another way, the market has not paid any attention to it. The inference being that  only volumes can confirm the importance of price, nothing else. So it's easier to track volume at price rather than a dozen MA's and their variants from SMA's to EMA's.. Volumes are the only difference between the trades placed by us and the institutional investors and in a market place where " might is right" it pays handsomely to keep a track of where the big money is entering and exiting. Volumes are the only way we can track these footprints.It's also the reason why we track at Vtrender the FNO data sheet, which is another form of volume at price.The FNO data sheet is updated every evening at this link here.

 

VWAP is an MA we track simply because it is volume weighted. Infact even the VIX is a weighted average of OTM options

 

The short point is that if you are not using volume in your analysis , you are actually trading the market with one eye!

 

I leave you with today's OrderFlow chart.. IT shows a seller in control below VWAP and DPOC.

 

 

 

Composite update and Orderflow

 

The open drive in the BN at the open met with renewed selling at the announcement of the rate decision by the Governor today.

 

After the inflation number had moved up and the industrial production looking good, one was thinking that the time may not be right for the RBI to cut rates. We felt as much in this short post made yesterday

 

The chart above shows that all anticipatory longs created yesterday and the day before were liquidated quickly and the market returned to auction in the zone it had been on 12th March.

 

In the trading room, we got our first inkling of the impending sell when OrdeFlow gave us a sell signal at 9.23 am this morning with the price at 10903.

 

 

However during intra day it pays to watch closely the vwap and dpoc as they define the dividing line between buyers and sellers on any given day.

 

Once vwap and dpoc were broken quickly, there was no looking back and sellers remained in control till the close when we saw good volumes coming near 10610-10660.

 

Tomorrow session will be completely removed from today's and there can be large inventory changes for the current series in tomorrow's trading.

 

It becomes a lot more easier when you understand the movement of price with the tools from Market profile.

RBI day

As many of you know, we trade the prices on our trading screens through a system of trading known as the market profile.

 

The Market Profile helps give us an edge to trading the markets and our performance speaks for it self.

 

On the Home page you will find a track record of all the instruments we track.

 

Here is the consolidated performance for this month.

 

 

As you can see we are net positive across all instruments for this month.

 

The system is calculated for one lot traders. Many sites conveniently hide the fact that when you trade two lots and if a stop loss is hit the loss in terms of points is actually 2 times and should be subtracted twice from the net gains to give a result for two lots.

 

However the system we employ shows you the profits you can make at target 1 and should the need arise you can also carry the position to target 2 by keeping the stop at cost price or target 1 should the market continue the move in the direction of the trade.The points made at target 2 are shown in all the links separately.

 

You can get all the above results in your trading account, plus lots more  by clicking under services to begin the process to join our team.

 

Amongst other things,

 

a) The Today page  has links to the global calendar. You should not have open positions in the MCX without first checking this calendar before 6.00 pm every evening.

 

b) A copy of Futures daily notes ( FDN) is now kept open on our Today page. The FDN is updated everyday with the value areas and the Initial balance levels. Also updated are the value areas for the previous week.

 

The FDN works on "prime levels" which is a system we use at Vtrender, modeled on the pivot system but utilizing "volume at price" for levels instead of price only

 

 

 

 

Performance sheet/ prime levels

"At 5230 the market is one standard deviation away from this declining vwap line and the trade currently playing out is a normal reversion to the mean set-up"

 

We pointed that out on Wednesday at 11.50 am – https://www.vtrender.com/content/sellers-vwap-0

 

At 3.30 pm the market was near the mean point again for this sell-off.

 

Have a look at how this trade has played out all through the past few sessions:

 

 

From points 1-7 one can clearly see that the market has bounced back every time it touched the lower deviation line from the main vwap line in Orange.

 

There was little doubt that it would do so one more time particularly as OF had signaled a buy In Nifty on Wednesday at 5240.

 

On to next week, we have the railway budget on Wednesday, followed by the RBI meet on Thursday and finally the Union budget on Friday.

 

During such periods, it always pays to look at higher time frames and the role they are likely to play.

 

Here is a composite volume profile from the start of the year.

 

 

Today's move puts the NF back into the high volume region marked in the green rectangle.

 

When this chart was last put up on Monday, we had mentioned the low volume zone not able to facilitate trades below 5285. In the past 8 sessions, the NF has spent only one session in that Low volume zone and 7 in the current high volume area.

 

A trip to the upper end of the high volume zone should be the play, but the actual trending move should begin only when we cross over above 5430.

 

Till then it will remain a sideways move in this high volume region.

Seller’s vwap- Mean reversion concludes.

Here is an updated chart of the NF March showing the sell off which began at 5680 in the NF March future.

 

Our last post on this subject was here

 

 

Yesterday's big upmove was terminated at exactly this declining vwap line as you can see in the chart above.

 

The seller took over from that point.

 

At 5230 the market is one standard deviation away from this declining vwap line and the trade currently playing out is a normal reversion to the mean set-up.

 

But the seller still sits up and as long as price stays below that declining line, he will continue the selling.

Seller’s vwap

 

A 196 point day in the NF and a 472 point one in the BN left us with smiling faces at the close, as OrderFlow and basic rules of market profile helped us stay abreast of the changing dynamics of the market.

 

In the end, the gains from the day were as much as the range in both the Nifty as well as BankNifty.

 

 

At Vtrender we have always stressed that the best way to trade the markets is always to follow price and volume action only.

 

Any derivative of price will not tell you half the information which price is conveying to you.

 

The rules are simple- Buyers live above value high and sellers below value low

 

Longs are right above value and the day's developing point of control ( also called dpoc) and shorts are right below this.

 

Our orderflow is tailored to recognize this basic rule amongst several others, which is way we end up being on the right side of the market most of the times.

 

 

In both the charts above, we have followed the same rules.

 

Longs have been taken above vwap and dpoc and shorts below it.

 

These charts are projected in the trading room along with these signals

 

Simple rules! Great profits!!

Importance of VWAP/ DPOC