Today was the historic budget day in indian markets and here we present the Δ OI example on Bank nifty on this most historic day to help you understand the usability of this data in giving you a trading edge.
We have already explained earlier through an example in nifty on how to analyze the index using the Δ OI data and the key takeaways from that post are as follows.
- Identify the side of the big money from Index futures data LONG or SHORT
- Check the options activity and confirm if that data is supporting this bias from futures with the bias from options CALL WRITING > BEARISH BIAS , PUT WRITING > BULLISH BIAS which we understand from the futures.
Here’s the complete day’s BANKNIFTY futures data which is explained below.
We have broken down the full day’s data into 6 clusters from A to F for easy explanation and reference purpose.
Similarly to identify the price behaviour during these clusters we have presented below the candlestick chart during the times from above clusters with the same labeling from A to F for easy linking.
Now that we have all the Δ OI data and the price clusters above let’s discuss what can we infer from the each of the clusters shown above.
Cluster A –
- There is a clear buying that happened in this cluster as seen from quantities and also by the end of the cluster the intermediate short of 9980 has unwinded by the end of this cluster time i.e. 10:10 AM.
- The average prices that these quantities have been bought can be identified as 30730 and 30783.
- Price behaviour from candle chart you can see that it’s clearly bullish with very minimal red candles during this cluster.
- Adding to this there was no material long exits or short buildups that you can witness through Δ OI during the period after your entry.
Outcome of cluster A :
- After the cluster of buying ended at 10:10 AM there was only one instance where price touched 30790 in the slot of 10:20-10:30 which is a buying opportunity with the view negation being price below the low 30662 of the initial buying that came in 9:20-9:30.
- Post this opportunity, price scaled up to 30930 levels which is 1:1 R:R on this setup.
Cluster B
- Once that 1 R:R move is done post cluster A buying we have seen a consecutive short interest during this cluster B timings indicating a supply coming in and if we didn’t exit our longs from morning this was atleast an indication to do that if you wish not to take shorts.
- See the cluster B’s candlestick price action you can see the price consolidating in a range and closing at the lows of that cluster. This price action is a bit debatable considering the price is still above or at the higher extreme of the previous cluster A’s zone. But the consecutive shorts tell us to book timely profits on the earlier longs.
- Two more important notes for this cluster are that the rises are being used to sold ( Price change is positive but our logic identified these as shorts getting built during 11:10-11:20,11:30-11:40) which is a responsive action rather than an initiative action which normally does not bring down the price significantly.
Out come of cluster B:
- The price negated the previous buying that came in the morning from sub 30700 levels and made the action for the day neutral.
Cluster C
- Once the price reached those morning levels there was again buying of 27k that came in defence but on the rises from there there’s a supply that has come in even at lower levels where there was a previous buying support in the morning which is 30790 and that supply of 28+11k was coming at these levels indicating that the sellers are taking control inspite of buyer’s response. Recall our post on “assessing the market mood” here when there’s too much addition that’s happening that’s an indication of significant move.
- If you observe the candlestick price action during this period the price closed at the lower extreme of the cluster again which is also a case of sellers in control.
Outcome of cluster C:
- There were multiple selling opportunities post this cluster until 13:10 to enter your shorts around 30790 or around which is the price of those shorts entry.
Cluster D
- The price has seen a good initiative selling resulting in a 500 point down move from those average prices where these shorts started coming in cluster C.
- This cluster doesn’t need much explanation as the move was damn quick and a result of the previous supply.
Cluster E
- After the fall of 500 points you clearly know that the sellers are in control, and there comes an attempt from buyers which caused an intermediate rise in this cluster which caused some shorts to exit of that 26,580 at 13:50-14:00.
- Post this there has been minimal activity until cluster F
Cluster F
- Again shorts started peeping in the absence of fresh buying post cluster E (Recall our assessing the market mood post explaining when there are significant directional moves that come in there’s a huge additions or fresh players that come in) and the sellers started taking control again and these shorts that were added in this cluster totaling to 50k also got their 1:1 R:R moves by the close.
Now that we have in detail saw what happened in different clusters, feel free to share your thoughts what you could have thought differently during these scenarios and the possibility of committing an error so that you we can help you understand better.
But we would be honest here it’s not this easy during live market but if you get sense of what is happening then you will master the art and make gains over time. In all the above scenarios we think that Cluster A and Cluster C could have been good opportunities for today’s market while rest of them are debatable or requires more experience and clarity of thought based on one’s level of ability in understanding the market’s intention.
As this post is already too long we don’t want to confuse you with the options data by adding it here but if you can check the action in different strikes during the cluster times mentioned above to see if they were in line with futures bias.
The overall option chain as such has seen good call addition from the morning if you were following it closely coupled with the futures bias is the bias or side on which you will trade on.
Feel free to comment out your thoughts so that we improve our way of explaining things in future posts.