The market's open today was out of sync with yesterday's close and longs from overnight were in pain, as the sentiment had changed.
The signals from the BN and NF were to exit the longs of yesterday at the open. However when you see a gap down, it is not wise to open a new position straight off the open price, but wait for the market to decide.
Generally when we get opens outside the previous day's range ( Open > prevhigh or Low) the market will take time to adjust to the new settings. We call these open types OAOR and more info can be looked up in the glossary section.
The simple message I want to point out is that one should not be in a hurry to establish a new position when you see such opens.
Considering the open of today, the question to be asked was if the buyer would respond to the lower prices at the open. If one had established that as a context, then the assumption for bias would be a sell as the market would drift lower if it did not find buyers.
The charts show that the markets did exactly that.
I want to focus today on another important aspect of our charts which are the vwap bands.
The vwap bands are shown in white in the charts and they run parallel to the vwap in Orange. The bands are placed at 2 standard deviations off the vwap line. Two standard deviations off the vwap line is about a 95 % directional move from the mean which is the vwap.
The assumption is that there is a less than 5 % chance for the market to continue lower than the white vwap bands.
Hence any intra trade opened near vwap needs to be booked near the white vwap bands which are the destination prints for that trade.
In the charts above, once can clearly see that the market repeatedly comes back away into the trading space once it hits the vwap bands.
We use the vwap bands to book a trade started near vwap . It should never be used to enter a new trade in the same direction .
The aggressive trader can start a counter trade from the white vwap band towards the Orange vwap band, but the rule is that they are used to book existing positions.