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.

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.

So you had a boring expiry today?

I wouldn't blame you for believing that when you saw a 66 point range today in a series which has seen many 150+ days in the Nifty.

The truth is that Fii's were extremely busy today closing out the maximum amount of Open Interest in Options today than anytime in the past six months.

Don't go by the numbers shown up on the NSE or the SEBI site for amounts. They hide more than they reveal.

Have a look at this sheet which plots their activity on expiry day since Feb of this year.

We have been saying that the expiry day is a liquidation day for these traders.

Today they closed 1229297 contracts in Options in that 66 point range which is almost the same as the entire amount of contracts they had put up in the entire September series!

That's not a small feat !

We had noted that they were max up for the series in terms of their committment and the liquidation gives them a good chance to play either side starting tomorrow.

On another note they are long in Index Futures at the start of this October series as this chart would show.

The data we are tracking courtesy some fine work by RM show that the long holding of FII's now in the Nifty is 75% of the entire longs held by the market in Nifty.

That's a strong piece of data right there and gives us reason to track these traders more closely than before.

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.

Here are 2 charts which show the range in the NF and the BNF.

The pane below is the current day range marked in yellow against a 20 day moving average figure.

The NF returns a 20 day average point range of 100 points and the BNF gives us 280 points every day.

This is a goldmine if you are an intra day trader.

What does this information tell you?

One, that if you are patient as a trader and know your levels well, then the market will give you enough opportunities to enter and exit your trades.

Wait for the market to come to you. Have a plan and execute it well.

Over come your greed and also your fear. The market is providing the opportunity to trade a very good range. Exploit it.

Using today as an example we get an IB of 44 points so far which when computed against the range we know, should give us a good chance to see a Normal variation day play out which generally targets 2IB.

The 2IB is within the 20 day average range and a highly likely target for the day. Hence the better trade would be an exit of IB for the 2IB target with vwap providing a stop.

Plan B would be a failed IB move which can set up a Neutral day environment.

Have a Plan . Use the range and trade well.

As the Nifty trades above the 50 and the 200 dma we have noted an increase in the algo activity in the market.

These could be mostly system setups programmed to buy above the moving averages. The high number hit in the FII activity both in cash and futures are a result of this ETF presence.

Incidentally the Buy figure of 87098 contracts by FII's yesterday was the largest in the past six months in terms of contracts bought or sold . Yesterday's vwap price of 5836-5846 September Futures would therefore be an important support for the market going forward,

Last week we traded a Time Setup on the BankNifty based on a higher time frame presence in the instrument.

Here is a chart which monitors the time at which a high or a low is made in a 60 minute period.

We have noticed the BankNifty do a high or a low at around 9.20- 9.25 in the first hour of the day.

We do not want to read much into that as it could easily be the Open Range Break traders entering or exiting positions.

But what drew our attention was the lows around 2.20- 2.25 pm each of which gave 200 points in the next one hour.

Since yesterday was a balanced profile with no longer time frame movement, the chart does not show the activity.

However since open we have seen the OTF in action in the banknifty.

Will we see the 2.20 play today?

The NF is at the top of last week's value area and a move within will undermine the upmove of last week and hand control back to sellers.

The last 50 day average of the Nifty movements is around 85 points and the last session did 133 points.

The BankNifty has been in a major downtrend for several more days than the NF and hence the 50 day range in BNF is quite close to the current traded range of about 250 points in the past 4 sessions.

The movements are being fuelled by the vix which has moved to a new regime.

The charts above show that intra day trading strategies which may have worked with smaller stops and targets are no longer in play in the current environment.

One needs to readjust to the current movement of the market.