Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

Increasing Risk of Short-Term Trading Inventory – Nifty Futures Market Profile and Technical Indicator Analysis

1 min read

Since Election Day on 4th June 2024, the market has experienced a significant one-sided movement. The Nifty Futures have shown a pattern where every minor dip is being bought up, especially since the Election Day crash. This consistent buying has led to a situation where positional buyers are now at a greater disadvantage.

Key Highlights

Nifty Futures and Spot Levels:

  • The Nifty Spot recently touched the psychological milestone of 24,000, bringing cheer to investors.
  • This milestone reflects strong bullish sentiment and investor confidence.

Smooth RSI Levels:

  • The Relative Strength Index (RSI) has been consistently hovering above the 70+ levels for the last two trading sessions.
  • This indicates overbought conditions, suggesting that the market might be due for a correction.

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Market Profile Analysis:

  • Since the Election Day crash, long-term players have been entering Nifty Futures, resulting in elongated structures on the Market Profile charts.
  • On 25th June, dominant short-term traders pushed the market to a new all-time high in a short duration, rejuvenating investor enthusiasm.
  • Emotions are running high, with no lower value areas built post 4th June, indicating a long-to-too-long short-term trading inventory. This signals potential profit booking.

Analysis and Implications

The chart highlights several critical points:

  • Overbought Conditions: The RSI levels consistently above 70 indicate that the market is overbought. This usually precedes a market correction or a consolidation phase, as the buying momentum might not sustain indefinitely.
  • Market Sentiment: The psychological reference of Nifty at 24,000 has created a euphoric sentiment among investors. However, this could also lead to complacency, where investors overlook potential risks.
  • Positional Buyers’ Disadvantage: With every dip being bought since Election Day, positional buyers who entered the market at higher levels might find themselves at a disadvantage if a correction occurs.
  • Downside Targets: For the July series, downside targets are maintained at 23,900 and 23,700 levels. Any corrections to these levels may provide entry opportunities for medium-term buyers to ride the long-term trend.

Recommendations for Investors

  • Short-Term Traders: It is crucial to be cautious and consider booking profits, especially in overbought conditions. The risk of a sudden market correction is high.
  • Long-Term Investors: While the overall market sentiment remains positive, it is wise to stay vigilant and not get swayed by short-term euphoria. Ensuring a balanced portfolio and considering hedging strategies might be beneficial.
  • Monitoring Market Indicators: Keeping an eye on RSI levels and Market Profile charts can provide early warning signs of potential reversals or corrections.

Trading Strategies

  • Buying on Corrections: Evidence of emotional or weaker hand sellers getting trapped or shorting at market lows can present good buying opportunities during corrections. Identifying these traps can enhance entry points for medium-term traders.
  • Maintaining Downside Targets: Being aware of the 23,900 and 23,700 levels for the July series can help in making informed decisions about potential profit booking and entry points.

The current market scenario presents both opportunities and risks. The consistent buying and psychological milestones reached by Nifty Futures highlight strong bullish sentiment. However, overbought conditions and overheated market emotions suggest that investors should proceed with caution. Balancing optimism with risk management strategies will be key to navigating the market in the coming days.

Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

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