30 minute Profile

The just concluded derivative series was a flat one month-on-month which was not at all surprising considering that we had vix readings of less than 20 for most of the month.

Those who followed the Vix tables would have noted that the expiry would be around 5252-5272 levels and we came to within 10 points of our high estimate with a high reading of 5262 today.

Coming to what is in store for us tomorrow here's a look at a 30 minute profile chart of the Nifty spot :

It was clear with a positive gap and the lack of selling through the day that buyers were in control and remained so throughout the day.

I was tempted to short the market at the important 5255-5260 level, but refrained from doing so as the close was strong and near the highs of the day. The action suggested a continuation higher.

Ahead between 5272 and 5307 we have two important profile zones.

1) The High volume region of 5292, calls for a slowing down of trade and ample opportunity to scrutinize and take a new call on direction for the week ahead.

2) 5272-5307 is also a gap from a few days back and the upper level of 5307 if breached should be the stop loss for positional shorts.Below 5272 shorts will be safe.

All the above are spot prices.Please take the levels as approximations as the volumes may not be correct.I do not have a data feed of continuous futures hence posting the profile for the spot. Also because we are rolling over today, tomorrow may be the right time for a new chart of the futures.

I'll catch up with you over the weekend with some more profile analysis.Till then happy trading.

Market Profile Q & A

I'm still on travel and don't have my laptop to post charts of current action, but am taking the opportunity to answer some questions which have been put to me here as well as the several mails I have recieved on the subject of market profile.

Allow me to start from the very beginning, which is that market profile as a system is used to track order flow i.e to find the role buyers and sellers are doing at any point of time in a given stock or index.Hence the system functions the best for the intraday player who likes to take decisions based on the chart action on his screen.A good understanding of Market Profile and especially value will help this individual to see much ahead by understanding who is in control on the chart.

Having said this, the profile on a weekly and monthly basis also gives you a good idea of control. All you would need would be weekly/ monthly value areas with stops and targets below and above these.

I will hasten to add here that Value Area though an important part of Market Profile is not the sole criteria in determining the trade.Your study should include day types, buying/ selling tails, initiative/ responsive activity and study of control over a time frame.There are many more but these are a must.

On another note,the market profile is a study of price, volume and time. The value areas are a function of price and time as well as price and volume.You have to differentiate one from the other.The values will be different especially in trending markets.The jury is still out as to which works better, but I have made the switch to price and volume some time back. This is not to say that volume profile is superior.

Again, the profile chart is dependend on accurate data flowing in.The best results are from tick data, though snapshot data can give equally good results.A word of caution for those who rely on yahoo etc. Reuters and esignal are the best.

Also, values for the indices are on futures only as the spot is not traded.The volume shown on some spot indices is derived and not actual so carful there.

I have tried to answer most of the questions recieved, but should there be more I will be happy to assist at virenras@gmail.com.

Cheers.

P.S- Appreciate if you can post any more queries here in the comments section, related to the functionality aspect of Market Profile, so that it becomes a learning process for all.

Corelation (2)

This is a follow up to a post I had done on the 19th of March on inter-market associations for the swing trader, especially the kind who takes his cues from overnight moves in the SPX or the morning moves in the Hangseng or the Taiwan index. You can find my last post on the subject here.

I want to give a shout-out to Manu who follows the Taiwan index and had requested for the post.

That all the world markets are inter-linked is a foregone conclusion (especially for me) and the same can be verified by plotting their charts on google or yahoo finance where a study stretching back several years can show you similar peaks and troughs.

With that knowledge as a background, one can use one market to predict the moves in the other simply by using the popular "revision to the mean" approach.

Here's a chart of the co-relation:

The traditional co-relation factor between the Nifty and the SPX and Hangseng is 90 % whereas for the Taiwan index it is 73 %.

Now if we look at the 50 day average one can argue that the Nifty has underperformed vis-a-vis the SPX and the Hangseng.

The 10 day average shows the pendulam swinging towards the historical average and the 5 day shows a break-down in the Nifty- Spx relation, but not the Nifty-HSI.The chart shows that the Nifty-Hsi and the Nifty-Twii relation has gone back to it's historical average

We can analyse 2 things from the 5 day average data the chart shows :

1) The Hangseng and the Taiwanese indices are highly co-related at the moment to the Nifty ( 5 day average = historical co relation) .One can take cues from these markets for the Nifty session for the next few days.A higer/ lower close there should mean the same for the Nifty.

2) The breakdown between the SPX and the Nifty brings the principle of  "revision to the mean" in play.So either the SPX will correct over the next 10 days or the Nifty would rise over the next ten days to ensure balance.

Remember these are only cues to take note of. The best trades will always come from  the chart which is open in front of you!

Volume

Here is a time, price and volume breakdown ( in excel) of the Nifty for the past 2 days.

The volume component has been filtered to show only block trades of a lot size greater that 35000 units.

The volume at around 1.30 pm was over 11 times higher than my filter.Within the hour the Nifty had dropped by 45 points.

For tomorrow, let's watch the same levels to see if we get the supply again.