This post is a brief write-up to new subscribers to understand the charts in the Trading room.
Please understand the information provided below by looking at charts in the trading room.
The above chart is a visual representation of the streaming charts available to you in the trading room.
There are 2 charts like the above in the trading room- One for the Nifty current month Future and the other for the BankNifty current month future
We watch these charts live during market hours.
Let’s Begin :
Order Flow/ FootPrint Chart :
This is a chart which will give you the strength of moves taking place intra day. Price action is studied against the OrderFlow shown as (sell prices x buy prices) in columns and it’s relation to the Orange line which is the VWAP and the day’s value areas shown in brown for the previous day and blue for the current day
The green would mean passive buyers entering and pink would be passive sellers.
The Footprint does not require any introduction, as many of you associated with Market Profile for a while will know. What is does is within the intra day sphere, eliminates a bit of guess work by showing precisely the movement of volume within the bar.
Thus instead of being restricted to just the Open, High, Low and Close of a small bar ( say 5 minutes or even 30 minutes) we go inside the bar and get an inner view of the kind of volume which traded within the bar.
It can be used to confirm or deny our bias for an entry or even an exit location by looking at whether the broader market participants covered positions or added new at a particular price point
The chart above represents traded volume and hence traded prices. Worldover the definition of OrderFlowvaries from what is coming into the market in the form of buyers and sellers and typically called theOrderBook to Traded Quantities and Traded Prices and representing transactions which have occurred. In India when it comes to getting the OrderFlow Book most of us do not get to see beyond the top 5 volumes and prices. Whilst this study of the Orderbook adds a new dimension to trading, often it is not accurate as many individual traders and even institutions occasionally cancel orders or put them up front only for reactions and not trade. Thus this study has lots of uncertaintly even if we had a deeper DOM or depth of Market as it is called.
On the chart above we have
a) Volume of a 5 min bar represented as Sellers x Buyers. The sellers are on the left and buyers on the right. Since the OrderBook is read vertically by the market with sellers above and Buyers below it makes sense to read the traded prices as well diagonally to see how many sellers are there below for a buy order. The chart is annotated with an example of this .
In reading the OrderFlow it does not make sense to track every bit of volume in a 5 minute bar but to observe closely what the Market is doing at important reference points like the day vwap or previous day VAH or current DPOC or previous day low or even the hypo levels. The objective being to see that if we are buying into the market, we do not buy into a sea of sellers or the other way around. If more buyers show then we will see quick shades of green.
b) The extreme left of the chart is the delta of the day shown as difference of volume traded at price . Thus certain levels which have buyers through the day will be green and balance red. At important points like day lows and day highs it pays to have a quick look and confirm if buyers are interested in those prices.
c) The total traded volume in a bar is noted and the difference between the buyers and sellers is painted at the bottom in a pane which will give us a quick idea of buyers and sellers in the past columns of prices. This is a sum picture of the difference in volume between buyers and sellers
d) VWAP is in orange. VWAP is volume weighted average price.This line represents the ratio of value and volume and is an important balance point for the day.
e) This chart also has got value areas from the previous day.
The brown dashed lines are the value areas of the previous session. These are the volume profile values.They are represented as VAH, POC and VAL.These are displayed at all times in the info bar on the left along with the day’s OPEN, HIGH, LOW, Last Price and VOLUME.
Above VAH buyers are in control and Below VAL, it’s the sellers. In between VAH and VAL price action can be random.
It always gives you a picture of the balance of the market.
Trend for the day can be said to be positive above vwap and negative below vwap .
This can be further confirmed by a price move above VAH or below VAL.
That is you buy above previous day VAH and VWAP
Sell below VAL and VWAP
We calculate this only for daily changes and there are times when OF and price diverge as traders with a bigger time frame ( more than 1 day) take an exposure in the market.
But at the end of the day, the OF picture always puts us in correct trades.
The OrderFlow indicators are trend indicators and will tell you that buyers are having more control than the sellers and vice versa.
Once positions are initiated, booking or adding to existing positions can be done at levels called the prime levels. These are available as PR3, PR2, PR1 and PP0, PS1, PS2 and PS3. More information on prime levels can be found in a post here
You can use the above information to adjust your position size or scale in or out of positions.
Whilst using the OrderFlow charts, it is necessary to book profits at each of the levels mentioned. Thus a BUY signal can be booked at the closest PR1, PR2, PR3 with every preceding level becoming a stop loss for the existing order. Depending on how the smaller OF reacts , one can re-initiate the booked order
The thick blue line is the Point of control (POC)for the current day . The POC represents the point at which the largest volume has been traded.It is called the developing POC or DPOC as the day is still developing.
The bluish-green lines are the highs and lows of the previous day.
The above information can be used in all the remaining charts as the indicators used have all similar colors and functions.
Market Profile Charts :
In the above chart,called the market profile charts, instead of bars or candlesticks, the alphabets A, B, C etc represent 30 min intervals of the day.
Here we like to see the buyer seller equation again in terms of market time and see where control is being established or who is driving prices.
You have volume profile values represented in this chart.
As the market keeps developing, there are important clues on the structure and range of the day in this chart.
You need to be quick to execute orders based on the stop n reverse methods in the smaller green/ pink orderflow. The smaller Green Pink OrderFlow is meant for the nimble trader who can take 5-10 short trades everyday. I’ll advise you to paper trade the signals for two days before you put money to work on them.On an average day, we have calculated a 85 % success rate for the signals. The few losses if you do make will not be more than 25 Nifty points or 45 Banknifty points each time (on the smaller green/pink). You have to book profits partly or fully once you get 25 points in NF or 45 in BankNifty and wait for the next signal.