Many of you following this blog would be familiar with the terms VAH, VAL & POC.
These are the value area high, value area low and point of control.
Whilst the VAH & the VAL are important for a particular days action and the next, and lose their relevance after some time, the POC becomes even more important as time passes by.
Markets have memory and great auctions, up or down have been known to halt around the POC.
Since this is the area where the highest volume is traded, markets try to gravitate towards all such points, past and present. The POC is called the efficiency point of the auction process and the single area at which both buyers and sellers agree on fair price for the day.
One of my good friends, Chad Payne from Linnsoft put up a post sometime back on the effectiveness of the POC in trading the ES futures. I asked him to share the chart with me and together we put up the following chart for our very own Nifty.
Let me explain :
The question we put together were :
1) How far is the distance between a point of control of a given day from that of the previous day?
2) How many times did price open up above the previous days point of control?
3) How many times did price open up below the previous days point of control?
4) How many days had a POC very close to the previous POC by a factor of 5 points?
5) How many days did the Nifty open within the previous days range and touched the previous days POC?
6) How many days did the Nifty open outside the previous days range and touched the previous days POC?
The answers are all there in the chart above ( you may have to download it ) .
The top most pane is that of the Nifty spot for a period of 158 days as shown by the green line in the pane below.this is also our sample size.The yellow dots on the chart ( updated till the close of today) are the volume point of control ( VPOC) for the current day and the blue dots are the VPOC for the previous day.
1) How far is the distance between a point of control of a given day from that of the previous day?
The answer is in the third pane in blue bars from the top. The average range between VPOC’s is 72 and
2) How many times did price open up above the previous days point of control?
The fourth pane in green bars gives a value of 90 days in 158 days which is 57 % statistic. So 57 % of the time, price opens above the previous days POC.
3) How many times did price open up below the previous days point of control?
The fifth pane with red bars gives you 68 times the market opened below VPOC or the balance 43 %.
4) How many days had a POC very close to the previous POC by a factor of 5 points?
9 days in 158 had a distance between the POC’s separated by a difference of 5 points. Percent wise that was less than 6 % .When I increased the difference to 10, the nos of days increased to 23 or 15 % of the time, the POC’s had a separation of 10 points.
5) How many days did the Nifty open within the previous days range and touched the previous days POC?
54 days.yellow bars in the second pane from bottom.
6) How many days did the Nifty open outside the previous days range and touched the previous days POC?
12 days.Bottom most pane.Another statistic (not in chart) showed the Nifty opening outside of range 58 times in 158 or 37 % of the time. Only 20 % of this time did the market go and touch VPOC.
So what do we know, that we did not know already.
One is that the distance is good between POC’s. Two is that they rarely are found near each other and three that if the open is out of range, the previous days POC has to be forgotten !
