Market Profile Long Term Nifty 50 Overview 04-03-2016
This post is not a trade plan or hypothesis of what may happen in the future, its more about the observation on the longer term and how the auction behaves similarly even on such a long time frame. Will try to do similar for other Indices in the coming days to see if they do the same but time being this is all about the Market Profile Long Term Nifty 50 Overview
As we all know by now that the auction moves up and down for a price discovery till it finds a balance or a price consensus and as the buyer or seller find the prices fair or unfair it again moves out of balance to do yet another price discovery and find a balance from the imbalanced move. While going through the Nifty 50 Spot Index long term chart, I could find this repetitive behaviour in past years. In the above chart we can see that whenever the auction found a balance, it was approximately 500-600 points of Value Area and a spike to either break down / break out from balance and re enter or carry in the direction of the break down / break out and do a fresh price discovery. The basic underlying concept of Market Profile across all the timeframes stays the same ; though the base bracket / timeframe we use for the Market Profile chart is 30 mins / bracket by default. The above chart is a weekly candlestick chart with Composite TPO Profiles drawn at balance zones. Barring the 2014 rally Balance which is far off from the previous balance, most of the balances are stacked above/below each other and once the auction has broken out of one balance zone it has tried to probe into it after few weeks and failed to accept and carry on further. The Innovators are the ones who time and price the market at a very early stage and start building long / short positions as the auction is still in the process of exhausting the current move and starting a fresh move. Once they are done with their position building process, we can see wicks on the weekly chart above ( known as Excess in Market Profile terms ). At the tops / bottoms of most of the balances we can see wicks forming at an early stage but a final excess a bit later. For example, at the ATH the auction created a long term excess which got confirmed once managed to enter the Value Area High and close within, which marked the end of the upmove and all attempts of breakouts failed thereafter. Looks so easy – Isn’t it ? Well yes, the only difference in the above chart is that its a weekly timeframe chart and even if the trades are entered at a favourable location, the stop losses will be wide due to a much later confirmation but the rewards will also be equally higher.
Once the auction broke down from the upper balance value area it tried to push towards the POC – Point of Control or the fairest price and gave a failure there ( Again a low risk selling opportunity ). After breaking down, it again developed value lower and created a balance which was broken recently on 29th February 2016 during the Budget 2016 announcement. As seen in the above chart, we do not have any reference where the auction would halt, apart from the microbalance seen in the 6600-6850 price range ( Not marked on the above chart ). All the other balances are marked once the auction breaks out of value and forms a balance, so I though for an alternative to draw the similar balance for the break from the 6500 zone, which obviously will not give a Gaussian Profile but will give a elongated one but still we will have a Value to work with.
And there we go !! We have a Value Area High now which was rejected ( 7970-7990 ) and the Value Area Low of 6880-6900 which got rejected recently with an excess and now up for a probe of the POC at 7530-7550 and the Value Area Low of the balance marked in pale green at 7620-7640. So going forward those will be extremely important references to get accepted or rejected. If accepted then the POC of the Value Area in Pale green is at 7810-7830 and the Value Area High falls at 8060-8080, and before that the Value Area High of the elongated profile at 7970-7990 will also act as resistance. Having said the above, there are fair chances that a rejection from the VAL or POC can make the auction drift lower and form a fresh balance and we will have fresh reference to work with and if fails to balance then the initial probe zone can be the recent low.
All said and done, when it comes to trading, we shift down to daily, hourly, 30 mins, 15 mins, 5 mins, 3 mins or even a 1 min or a timeless 2, 3 or 4 point Renko chart to carry on with the same exercise of finding the balance zones and looking at the Footprint chart and watching the Order flow for better entries and exit on the side of the prevailing long term trend.
One more interesting point which I noted while marking the balances is that the FII Open Interest Data is in sync with the balances and they are found to be flipping their positions near the Value Area extremes and most of the times just before or after the expiry as they most of the times square off large positions on expiry day and start building fresh positions later on.
There are various things to look at and one has to follow what one is comfortable with and this is just an observation that I came across and though of sharing with everyone.
Happy Trading !!
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