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

[Premium] : When to Anticipate a Short Covering Rally Especially When Global Markets Reflect Tensions

2 min read

Here is one of my Signature trades using market profile and how one can look through the trade setup for a potential short covering rally especially when we are dealing with negative global emotions . On Wednesdays trading most of the Asian Markets are down due to the trade war tensions and the previous day US Markets slides to negative. The most interesting part was 4th July US markets are closed for Independence day.

US Markets Settlement Close on 3rd July 2018

[Currently, this tutorial access is limited to TradeZilla members only] [ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”3″ ihc_mb_template=”1″ ] Pre-Open Talk on 4th July 2018
httpv://youtu.be/gXbI8VHFZFo?t=3756

Bank Nifty Futures 5min Charts on 4th July Morning

However when comes to Indian Markets – Pre Open Trading was majorly positive, however indices(Nifty/Bank Nifty) managed to close moderately positive despite all the negative global tensions. In the regular market session Bank Nifty started sliding faster (fall of price is rapid). Almost Bank Nifty lost 141 points (-0.5%) in the first 30minutes. In the first 30minute period (Letter “A” period) Bank Nifty Futures also took the previous day low.

Volume in the 1 hour of Trading

Majority of the Letter “B” traded below the previous day low. First one hour trading volume in Bank Nifty Futures is moderate which indicates sellers are not aggressive enough and could be from emotional sellers who reacts to global sentiments. (at this time it is not clear as value started building lower) and the sellers confidence level was so high in the first half of the trading. Even I quit my longs in Bank Nifty Futures around 26188 levels in the first 10 minute of trading due to high confidence selling.

Waiting for ABC Flip

However in the “C” period price flipped back into the previous days range which is called the ABC flip. Waiting for the ABC flip is an interesting trading setup especially when we are dealing with negative global emotions. When the C period flips back into the previous days range with a good short covering (possibly if you are frequent in the markets you know what is a good short covering). C period recovers 95 points from the lows which is very first potential sign that emotional sellers are likely to get trapped despite value forming lower. Letter C period flip also indicates that early sellers confidence is now decreased. That motivates me to re-enter into the longs back again at 26193 levels once the ABC flip is confirmed (around 11.00a.m).

ABC Flip on 4th July 2018 – Market Profile

Monitoring for Continuation

Now as the time progress more and more trading activity got centered around 26210 levels and still price is struggling to take day high yet. Almost Point of control is 8 wide by 1.15p.m. By this time my assumption is that more day time shorts got built around 200 MA levels. Look at the amount of players who are coming and selling exactly at 200MA. Which raises the odds of short covering rally when combining with the other surrounding factors like ABC flip, POC widening to 8 TPO, mechanical selling at 200 MA levels (AKA very close to day high levels) – 26249.9

And also from the short term reference perspective Bank Nifty Futures had back to back prominent POC and a double mechanical reference which further indicates that short term inventory when short to too short and that also increases the odds that short term players are more likely to keep their stops around Prominent POC levels and Double Mechanical references as shown below

Stop Hunting – Bank Nifty Profile – 4th July 2018

By 1.35p.m came the short covering rally – it was very fierce and completely against all the day timeframe traders and shorter term players who places their stops at day high, Prominent POC levels and Double Mechanical reference levels.

Similar Pattern in Bank Nifty is observed where US Markets and European Markets crashed previous day and most of the Asian Markets are trading negative due to global cues.

Pre-Open Talk on 22nd June 2018
httpv://www.youtube.com/watch?v=eGoLiSC9HYI

Market Profile 22nd June 2018 with good ABC flip – Nifty Futures

Market Profile 22nd June 2018 with Moderate ABC flip – Bank Nifty Futures

Price Rejections around 200MA on 22nd June 2018

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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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