Continuing our series on evaluating Nifty ranges, today we shift our attention to the Initial Balance.
For those of you who missed our first article on the ranges, you can find it here : http://www.vtrender.com/content/nifty-daily-stats-1
The Initial Balance or the IB is covered in the glossary section : http://www.vtrender.com/content/initial-balance
The IB is the first hour of the day. It generally has the biggest longer time frame participation who move in and establish value for the day.
A proper understanding of IB will include knowing about the type of Open, the opening swing ( different from Opening range) and the highs and the lows of the First Hour.
Once the IB is complete, the rest of the day can be easily managed based on this range.
Her's some stats which show what happens once the IB is done and the market moves outside it.
Click on the chart for an enlarged picture.
The first pane is the Price bar
The green pane is the IB breakout on the higher side
The red pane is the IB breakout on the lower side
The blue pane is when IB broke on both sides that day ( neutral day)
The greyish green was when there was no breakout
And the last pane represents the days evaluated for the exercise which in this case is 288 working sessions.
As can be seen :
a) the Nifty always breaks IB. It has failed to do so only 4 times.
b) There are more lower side breakouts than upper sides ones.
c) The number of neutral days is also large. It shows that once the market fails to follow through on one side it inevitably goes to the other side by traveling through the IB. We call this rule the IB band trade in the trading room.
Here's another chart which gives the percentage of times the breakout was attempted.
The lower side breakout has been done 39 % of the time as opposed to 23% at the highs.
Some strategies which can be done based on this
a) Wait to enter the trade after the IB hour is done
b) Enter on the exit of IB with a stop at the other end
c) If the market fails to follow through on the IB break and comes back inside, reverse the trade ( IB band Trade)
d) Targets for the breakout are 2IB which are uploaded in the FDN daily.