Month: September 2013

Here is a Volume by Price chart of the September Futures (expired contract).

 

The Purpose of the chart is only to see and note the volume weighted average price (vwap) of the series as well as the region where the highest volume occurred.

 

 

The Orange is the vwap of the series and the yellow is the 2 Standard deviation of the vwap line.

 

The white horizontal lines are the Point of Control or POC.

 

The black horizontal bars are the volume at price.

 

The Value area is in purple.

 

The Market did not put in a normal distribution in September, so to me the value area of September is not important.

 

But the POC and the vwap of the above distributions are the most important points.

 

The vwap of September was at 5734 and the POC was the closing price or expiry price at 5882.

 

All prices are of course Sept Futures.

 

The rollovers were at a 65 point premium , one of the highest I have seen in several months .What it does is, it makes it difficult for a long only trader to hold on to a long position especially if price moves against him quickly.

 

A few things which stand out in the chart and something which we talk about in the trading room everyday 

 

1) The Market tested vwap on 3rd / 4th Sept for new sellers, broke lower but could not find any and carried up above vwap all month. Buyers breathe above vwap freely.

 

2) It's never advantageous to buy a 2 SD or a 3SD vwap touch. You are playing a trade with a 5% chance of winning.

 

3) The test of vwap is due sometime again soon based on this chart ( +/- 25 -30 points to account for OCT premium).

 

4) The Market will be under pressure below the high volume zone of 5882 and is likely to witness increased selling if vwap is not defended.

 

5) If the POC and the vwap are carried with volumes to a Nifty Spot chart then vwap is 5709 spot and POC is at 5869.

 

The BankNifty Sept Chart is below with the same logic as above

 

 

 

The above data is all market generated information.

 

It's the market's levels and something which the market would respect. 

 

We trade the market with it's levels, not of our own!

 

September Series Charts

Here are 2 charts of the NF and the BNF which show the Profile or the kind of auction taking place in the market.

 

 

 

These are day session charts with the blue area showing the volume traded at price and to the left of it we have the TPO charts which represents Time Price Opportunity or the opportunity created by the interaction of price with time at a particular period at a given time.

 

We prefer these charts over regular bar or candle charts as they give a 3 dimensional view of the interaction of price, volume and time.

 

This interaction is what creates value and in these charts are main purpose is to see where value is created and the movement of price away from it which gives us great trading moves.

 

To understand the chart above we have to understand what happens in the market place.

 

We have a buyer and a seller who meet up and agree at a given price to get a deal. An interaction of many such buyers and sellers creates a market.

 

They keep exchanging price between themselves as price moves horizontally . This horizontal movement creates value or the value area as we call it.

 

Soon either the buyer or the seller will start feeling (based on new information) that the price is not fair and they start moving the market up or down as the case may be.

 

In the example above the first red rectangle in a larger value area comprising of several day transactions each with their mini definition of value.

 

Soon the buyers felt that the price was not fair and they moved the market up.

 

Now what happens is that the price would continue moving up till the last of the buyer has bought. This creates an unfair price or excess as we call it in market profile.

 

This excess once created shuts off the up auction and the movement back to value begins again.

 

We saw this movement on RBI day.

 

Once we came to the top of value the sellers took control of the market again and drove price to the lower end of the range seen.

 

The current profile in Nifty shows that the buyers and sellers are equal in the chart we are looking at, but in banknifty we are still seeing the seller dominate the auction, The individual profiles still show small excess at the top which means that the seller controls.

 

There are many other concepts we outline in Market profile but the core has always been the interaction of buyers and sellers and the relationships between them which creates value at times and excess ay others.

 

Stay neutral when market is in value and go with one party who controls the excess.

 

It's as simple as that.

 

We have a trading room where we try to understand this behavior everyday and take trades based on it.

 

If you are interested to know more about this study, then send us an email to vtrender@gmail.com.

 

 

Profile Charts Of Oct Series

At Vtrender we are big believers in tracking volumes in charts both horizontal and vertical.

 

The study of tracking volume horizontally across price is also called volume by price.

 

These represent areas of high activity or points on the chart where the market attracts participants more than other places.

 

The traditional belief is that the more popular moving averages like the 50 and the 200 dma are the areas where the larger participation occurs. However there could be other points on the chart which could attract volume or even a large buyer/ seller. These high volume points represent important supports and resistance and if followed closely can be helpful in forming your targets and supports for your trades.

 

Below are two charts of the Nifty and the BankNifty Sept Futures and I will explain how volume can be tracked in your normal charts too.

 

 

 

In the above charts I have plotted on a 30 min scale price and volume.

 

The volume pane below has a volume moving average ( in white) which I have compounded by 1.6 times to help me identify volumes which are above normal.

 

The above normal volumes are identified through the shaded green and are above the white Volume Moving average.

 

Next we have taken POC's of the daily bars where the volume has been higher than normal and identified them as red horizontal lines in the chart.

 

On this chart of NF those 3 big recent volume zones are 5407, 5574 and 5822 Sept Futures.

 

If you track intra day closely then the importance of the above numbers need not be stressed more.

 

In the BNF we identify the big volume at 9288 and 10159.

 

Acceptance above these points is price confirming that the trader who bought at these prices is profitable. Also when prices come back to these points the trader may try to defend his position as he may theoretically hold 25% of his position open if he is following sound money management techniques.

 

We don't need sophisticated software to track these volumes.

 

Any good chart which gives you price and volume in 2 panes would do. The naked eye would easily identify the volumes bars which are above average . Next you need to look up the NSE site and identify the day's highest volume on this chart : http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp

 

The correct price is not important and a band of 20 points should do the job.

 

Track this chart everyday. It will take away the pain of tracking a lot of numbers. After all the market has given legitimacy to one of those numbers by marrying volume to it!

Big Volume Bars