Nifty Levels

The above picture shows the charts of Nifty Futures and Spot for 12th of October 2012. NF chart is on top and the lower one is Nifty Spot.NS and NF move in tandem. In higher time frames price discovery happens on NS and NF follows. Due to the premium and discount components we cannot rely solely upon NS levels.We are playing with  10-15 points stop loss and NF can move on  its own   and stop us out.Sometimes NS leads and pull NF along and when NF run amok NS rein it.

Look at the above chart. Please note that there is  no relevance for exact price levels. Decision points are important. In the morning NS was leading. It hit PDH and a BOF happened. NF failed to test the PDH hence I missed the trade.

On the way down NF was leading and hit the IR Low and broke it. I shorted the BPB and got stopped out. It was a clear BOF on NS. This loss could have avoided by monitoring NS.But I would have lost money going long when NF came back above IR Low because it was already a BOF on NS.

This area requires a detailed study. We may need to act differently depending on which one leads, NF or NS.Leader is the one which hits the DP first and not the one quoting higher.Please do some brain storming and let me know your ideas. This may help us to catch some good trades and avoid some bad entries.

I would like to thank "bizagra" and " Atharva" for bringing this subject to my notice..
Kindly read the comments and give me some feedback 

12102012

Nifty opened within previous day range. Being an announcement day did not attempt any trade early morning.Could not get a short signal as Nifty did not test PDH and there was no retest of HOD.Shorted the BPB of IR Low even though I suspected a "Bracket". Stopped out for a point.Did not attempt any other trade. Later only I came to know Nifty was channeling down.Channels are really frustrating. Is there a way to identify it earlier ?

Brackets and Envelops

I assume the Market is trading in a range all the time. For me a trend is a series of range breakouts. Market moves in waves and every wave is a probable range. I had written about this earlier (Read).

“Decision Points” are another idea on which my trading is built. Decision points are proven levels of demand and supply imbalance. Once price approaches this area again, traders are expected to act at these levels again and create an imbalance.

Sometimes these two ideas applied together can create confusion. I have identified two different scenarios where we will have some confusion .Two type of range formations repeatedly occur in Markets where we may make costly mistakes. These are “Brackets”and "Envelops”

"Brackets" are formed when a range establishes around a decision point. In such cases mostly the DP acts as a midpoint of the range. Yes, you guessed it right. It is a Barbed Wire pattern. Barbed wires are tight bracket formations where we stay out. Bracket formations could be wide and tradeable. Once a Bracket forms, the DP in between loses its significance. Trade a Bracket as if you trade any other range, if it is wide enough to trade.(Example)

“Envelops” are ranges that engulf a previous range. Sometimes market establishes a range and later the extremes get extended. In such cases the previous range loses its importance. Still the old range extremes may continue to attract some order flow and confuse the traders. In case of Envelops, trade the new range as if you trade any other range.(Example)

Pay attention to Brackets and Envelops. Solution is very simple

Trade the extremes. Don’t fiddle with the middle.

11102012

Nifty opened within previous day range and sold immediately. Cracked PDL and pulled back after forming an IR . Went short the BPB of PDL as bias was bearish .Scratched the trade as the price was not willing to go below the IR Low. BOF of IR Low gave a long signal. My target was IR High. But it gave a 80 point nice move cracking PDL, IRH, BRN and PDH. VWAP was 5695 at 3.15 PM . there was a margin of 45 points.This fueled the further up move during last minutes.

10102012

Nifty gaped down below PDL and BRN. I was looking to go short on the retest of BRN . But it went above it and formed another range overlapping  IR. This made original IR irrelevant. BOF of Range Low and retest gave a long signal which moved as expected. BOF of Range high gave a good short signal. I expected a break of Range low and further move down But Nifty made a Barbed wire around LOD.rest of the day.

09102012

Nifty gaped up within  previous day range and spiked. Bias was bullish and was looking to go long. It did not channel as expected. TST of IR low gave the first signal. TP at range high. TST of IR high and failure to continue above it gave a short signal which dropped all the way down to BRN/PDC/PDL cluster. Expected a retest of the low to go long. This did not happen. Nifty channeled the rest of the day.