Lets understand the price movement of Nifty Future charts on 21st Sep 2016 and lets try to understand how the liquidity hunt happened. Nifty Futures opened within previous days range and started moving up unidirectional in the first 90min which also broken 2 day high followed by sideways action till 12:45p.m. The sideways action is followed by a sharp selloff in the noon session triggering huge volume at the bottom.
Lets analyze the Fridays Intraday Price movement of Nifty Futures 1-min chart to understand how exactly Institutional Traders Gets Large Pool of Liquidity? and lets try to understand the context behind that move.
The Bloomberg Tradebook Trader Exercise has been designed by The ReThink Group to assist traders in practicing the thinking style. This mind game can be accessed over the web and bloomberg terminal. Ironically, brain and behavioral research shows that the markets only masquerade as a numbers game. They are actually a game that neuroeconomists have called “intentional social risk”.
There are events like Union Budget 2016,BR-Exit where the downtrend was imminent followed by the faster recovery and in most of the panic situations recovery was faster than we think. And there are times where we face slower markets. One of the problem we face in today’s trading world is market changes its opinion faster than a human mindset and there are times it frustrates a traders and changes its opinions slower than we think.
I’m no doubt dating myself, but when I was a kid, I had a popgun — the old-fashioned kind with a cork and string (no fake Star Wars light saber for me). You pulled the trigger, and the cork popped out of the barrel attached to a string. If you were like me, you immediately attached a longer string to improve the popgun’s reach. Why the reminiscing? Because “Popgun” is the name of a bar pattern I would like to share with you this month. And it’s the path of the cork (out and back) that made me think of the name for this pattern.
Stop Hunting is generally adopted by stronger players ( in matured stock/commodity markets it could be even driven by algorithms ) either to remove the weaker players from the market, to generate momentum, to seek liquidity or to generate volatility to benefit from it. Generally stop hunting happens during mid-day where the liquidity is dried up.
On the trading floor the buyers and sellers use hand signals to communicate Buy and Sell Futures & Option, to communicate quantity to buy and at what price to buy/sell in a open cry environment. The signals let traders and other floor employees know how much is being bid and asked, how many contracts are at stake, what the expiration months are, the types of orders and the status of the orders.
The Heatmap shows the Nifty historical monthly high-low swing data points which gives you a broad overview about the nifty monthly swing range. Here are some of the visual data points collected from the Nifty high low swing range heatmap.
In the last episode we learnt about sentimental gaps and how it got faded by going against the retail traders sentiment and in this tutorial we will look into the professional gaps which remains unfilled for months and sometimes years!
Gaps are always interesting to me! I gives directional clues and also trading ideas. However each and every gaps should be treated differently. In the last tutorial we had discussed which gaps need to be given preference and which one should be ignored. Only the Gaps which opens above or below the previous days high low range gains importance from a traders perspective.
Gaps are nothing but lack of trading during the market open caused by either by a day traders or professional institutional traders/investors. There is a old saying that ‘all the Gaps will fill’. It is often observed that wider the gap introduces more volatility in the markets. And gaps are created because of extreme sentiments among traders/investors (Macro Events, Earning announcements, earnings expectations) which make them to bring flood of orders during the market open
The confidence level exhibited by the unskilled trader who is new to the market is enormous in most of the cases and after few trades they will start behaving like an expert. Most of the traders who are young to financial markets would have experienced such tremendous confidence in financial markets during their initial stage of trading/investing.