Inspired by Smart Trader I am posting my understanding of the market structure. My trading decision is guided by Volume based price action. I have labeled four points in the 5 min chart that I feel where the volume and price action is important. The first trigger for trade entry is always the volume related price action. The first and second target along with stop loss would be based on the Decision points. The premise for the long trade in Nifty Future would be based on the four points.
1. The first sign of Bulls: Nifty Future moved above the morning session high of 5344 and attempted to take out the previous days close of 5352 with high volume. Bears stopped this up move with high volume and Nifty Future faced a wall of resistance at 5344.
Conclusion: Bulls have shown interest in moving prices higher and Bears are interested in defending the 5352 level.
2. Low volumes in down move: After facing resistance at 5344 Nifty Future starts down move with low volume. Nifty Future makes a new low at 5328 below the morning session low of 5332 with low volumes.
Conclusion: Bears are not taking initiative in moving prices lower and Bulls are largely absent.
3. Tight Range below Day Open: After making a low of 5328. Nifty Future trades in a tight range above 5330 and below the day open of 5339 i.e. around the morning session low. Interesting thing is that just before the up move the volume falls to a new low.
Conclusion: Nifty Future trading flat and volume falling would mean that either Bulls or Bears are ready to throw the towel.
4. Pullback to Day Open with low volumes: Nifty Future moves with surprising speed above the Day Open till the Previous Days Close with high volume. Nifty Future pulls back to the Day Open with low volume. Also after breaking the downward sloping trend line observe how Nifty Future touches the trend line at 5339 @ Day Open.
Conclusion: Always the first low volume pullback of a high volume move is a very good trade entry. Compared to the previous up move target of 5352. This time Bears are not defending the 5352 level with high volume. Bulls are in control.
Summary: The one good trade today was at 2:00pm the pullback of Nifty Future from 5348 to 5339. At 5339 to 5342 was the best long trade entry with stop loss at the morning session low of 5332 and first target is the move above 5352 and the second target of the up move above the previous day high of 5358. Generally a up move with strong volumes and towards the days close moves by at least 20 points above the days high. A target of (5348 + 20) = 5368 is feasible.
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