Order Flow

Viren here.


I want to congratulate a lot of people who have taken the opportunity to learn about the revolutionary concept in trading called the 'Market Profile'. This is evident in emails, your comments and the questions you have been asking about this topic.

As you take baby steps to incorporate the methodology in your daily trading, let me assure you that a firm grasp of this subject will always put you ahead in your trading be it in the Nifty index, in stocks, in commodities or forex.The system works everywhere.

Those who have been trading for some time now would have understood the changes brought upon in the life of a trader by the fast growth of the internet as we see it today.Many of you would be trading online not having to call your broker for execution of your trading ideas.The growth we have all witnessed will become even more quicker in the years to come as internet trading attracts even more volumes to the market.Thus a bull-bear cycle which previously would average 20-30 years now happens in 4 years and would get even more quicker in the years to come.

The pace of the market has changed and will get even quicker in the years to come.As traders trade on information present in the market, you need to put yourself ahead of moves and swings of the market.Information can change within minutes and the 30 minute time frame we use in market profile will become the accepted TF for the day and short term trader.

The concepts of value and auction are not new to us.If you have ever been to an auction you would have seen the base price as the start price. The first buyer when he bids announces a price higher than the start price.Soon other bidders join in the bidding and as volume of bids increase price moves higher which means that value is established higher.After reaching a high volume point, most bidders would think that the price is expensive for the item bid and drop out of the auction. As the volume starts drying up the floor manager calls the auction off when he finds no more bidders ( no volume ).Similarly in our markets order flow which is nothing but price against volume will tell you when the auction is slowing down and when the perception of value is changing. Fortunately our markets auction both ways so you can make money bidding up or down. Only you need to know when buyers are entering/leaving or when sellers appear.

A student of the Market profile will plainly have an edge versus any trader who uses ema's,trend lines,macd's, rsi's or any other oscillator or mechanical trading system which are at best confirmatory indicators.The profile approach will allow you to foresee the developing pattern for the day and the oscillators can be used to confirm the analysis if you are not confident initially.

To illustrate my point I want to take you back not more than a week back and follow the posts on this blog which followed the market movement through the Market profile. Both Shai and myself have stopped using oscillators, moving averages, trendlines etc for our trading and instead rely only on price and volume to keep us ahead in our decision making.The market profile has already incorporated all the price movements caused by traders using all of the above and a whole lot more.I can safely say that every single price reaction from a moving average, trendline, fib ratio, oscilator divergence has been recorded with the volume on the profile chart already.

Yes it's as simple as that-only price and volume. Price pays and volume shows the way.. Don't complicate your trading with anything else.Charts which have a string of indicators in the bottom pane are a distraction and only take a trader away from the main action. Besides they are lagging and confirm only when the move is made.

For the coming week the Market Profile has given us several pivots to see price/ volume action. Keep a watch at 5010-5018, then at 4955-4964 and 4882-4842-4825.On the upside the levels are 5092-5096, 5135 and 5215.

Happy trading.

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Shai here.

Just to support Viren's levels, posting a chart of Nifty ( continuous ) Future daily chart from January this year.

The levels are for the intermediate term and clearly shows two levels 4872 and 5257 as the decider levels for bears and bulls respectively.