Let’s begin by looking at the charts of the Nifty and the Bank Nifty future.
The Nifty had a slowish start to the day, but it was building up to the violent break out we would see in the afternoon.
The Bank Nifty broke below value high to move to value low, where it failed to attract a lot of selling. A move above VWAP was confirmation that the mini-downtrend had ended.
We used the quiteness of the morning session to share a couple of ideas on trading instruments. Shai did a good job in talking about moving averages and their role in trading.
Have a look at this chart :
The instrument we have chosen is SBI and the chart shows the impact of a 5-day moving average on it.Neither the instrument or the moving avaerage has impact on the study. The moving average can be 5, 10, 15, 50, 20, 70 ,1030 or any number the analysts come up with ( incidentally without any reasons).
The charts clearly show that the average lags price.Each turn of the moving average is 2 bars ( 2days) after price has moved.We never recommend the moving average for intra-trading because of this lag nature.
The lag can however be reduced slightly by moving to an EMA or DEMA or even TEMA.But the lag remains and it cannot be eliminated.
That’s why in an intra-day set-up becuase of the lagging nature, it is not safe to base decisions on it.
So what is the solution?
Simple, add volume to the moving average through something called VWAP.
You don’t expect me to talk about problems, without giving you solutions, do you?
Have a look at the same chart as the one posted above of SBI, this time with the VWAP.
You see how if you would have used VWAP, every turn of the market would have been addressed. The trend of the instrument and the indicator is up and VWAP would have kept you in the trade.
At Vtrender-2, we keep bringing you analysis which keeps you ahead of the curve.
Most of our trading mistakes emanate from the wrong things we pick up.If you can reduce mistakes in your trading, then you take that half a step forward to being a successful trader.