Today’s day trading in the Nifty future was torrid for all of us trading on Orderflow.
The day was marked with whipsaws and I had to put out a message suggesting not to trade in the NF.
Whipsaws are a part of any trading system, even for us which rely extensively on buyer-seller activity.
I have covered the subject in OrderFlow- Practical usage which is available in the Must Read section on the right.
To quote from the post :
What about whipsaws :
To answer this question we need to see why whipsaws happen. Since our indicator is a buy-sell barometer, it will whipsaw at places where both buyers and sellers agree on value.These places would be the Point of control ( developing and previous) , VWAP and occasionally value area lines also.Most of the time these places are within value and hence the green pink indicator would be operating.The other option would be to wait out the period till a resolution happens. The POC is the place where the market finds it best to trade and even if the signal is good one needs to be patient for price to move around it.
Generally at points such as the day DPOC and even VWAP as buyers and sellers are trying to outweigh each other, these kind of conflicting signals emerge.
However the eventual resolution is when one party gives in to the other and we have a move from the centre which becomes a trending move.
These big moves usually happen after 2 or at the most 3 failed moves, but the eventual move out from the zone is guaranteed to wipe away all your losses from the previous trades.
In the NF chart above, prices whipsawed at vwap/ dpoc ( blue and orange lines) , before a move to 4965 materialized which was a trending move.
However because of an unforeseen news event at that time, the market moved back into the previous range and repeated the cycle again.
This time around the third move out was a very big one.
The story is the same in the BN chart of today
The Buy signal was generated from the same spot as before.
