IB Action: Open within YVA near POC and went on for test of VAL before driving higher by the end of B period towards poor highs of 29/10 (overall this action is called OTD i.e. Open test drive which indicates a lesser confidence by bulls in this case) which has then ended the IB period with a singles from 11630-11710.
Within the IB period we have seen two big buyers one at 11699 and the other at 11718 which is outside the singles.
So after the IB our plan would be to buy near the singles considering a buyer’s imbalance in the IB which in this case is in the range of 11630-710 and we will buy if we see stability at previous buyer’s levels which is in this case 11699 or near to this price which is the buyer’s entry within the singles.
After IB and in the C period when we started moving down to 11699 we didn’t see any buyers holding up on a 3 min chart which is ideally an indication of an imbalance being in doubt of getting failed and that usually indicates a test of IBL and change of rules as you would no longer be interested in buying the singles until you see that stability that you would want to see and by 11:15 we got to IBL without any meaningful stop in between.
After we got to IBL our rules are different which are Buy the IBL on the back of a demand and sell the IBH on the back of supply. Here it’s important also to keep an eye on the changing dynamics when price is near IBL or IBH in terms of data points.
As you are already familiar the best high probable setup is if you see CE sellers not in control who got in below IBL then that warrants a trade on the CE Buy side for retest of IBH and in a similar way if you notice PE writers at or above IBH then that makes a case for a trade on the PE buy side for retest of IBL.
So we got near the IBL by 11:15 and what was happening there at that point in time is what you need to pay attention to and here’s what i see has been happening.
At this point index-option-alerts channel gave one alert which is a long on 12000CE which is not very relevant for the given context where price is trading in the range of 11600-11700. So that isn’t a notable data point to rely on and anything near the money or ATM would be more relevant on any given day.
Apart from the above there is also one other thing that was happening at this point which is 11600 PE is already trading above it’s writers levels of 128 and sustaining there which is an indication of a further extension down as the writer’s are already in trouble there and still they aren’t out at that point which this clearly rules out the case of trading a CE buy there as we don’t have a CE writer trapped there which we usually would want to see at IBL but in contrast we had PE writer trapped and that makes a case for an extension down.
So this is the first opportunity that we had for the day which is a buy on this PE when price near the IBL and this option’s price was Rs.150 treating this as an extension handle and keeping a stop loss above the IBL at nearest supply zone as IBH is far to take risk.
Now you might get one question on why should i have tracked 11600PE at that time there are two reasons for you track this at that point
- The most relevant strike to see if IBL holds is 11600PE
- Also the highest OI was added in this particular strike at the open of 400k
From there we made a clean 100 point down move, Now as we are trading below IBL without a big seller in the futures we will also take a trade if we see a seller of CE who got in below IBL and not in control which was not seen in any near the money strikes and hence there was no high probable trade warranting a rise.
This is how the day had to be traded for with our rule setup mentioned in the course the improvement that you see which is different from what’s mentioned in the course is using options data point instead of futures data point which we normally use to judge an extension. Keep this in mind for your future assessments to judge the extensions above IBH or below IBL.
Plan for 01-11-2020
Overall context is that we are trading below 11780 which is an important reference from higher timeframe and we would be looking for a test of 11442 from a swing perspective.
We closed the day near IBL with no meanigful selling in futures so it’s better to take the upcoming day fresh with following references.
11640F as it’s the POC of 30/10 and VAL of 29/10.
from options we have seen significant activity on 11700CE and 11600 CE also on 11500 PE and 11600PE.
From the macros shared you can see the important references for these strikes.
Here is what’s important for options data points.
11600CE – Rs.240
11700CE – Rs.168
11500PE – Rs.169
11600PE – Rs.100 for Longs.
Not sure How to use these data points from options?
Here are the basic rules if any option is opening above writer’s reference mentioned here and is sustaining there at the open that’s an indication of big move within the IB and the time for you to react within IB without waiting till end of IB which we normally do.
As an example let’s say 11500PE – opens on monday above 169 and sustaining there in the opening 5-10 minutes with also a big exceptional seller in futures then that’s an indication of a quick down move within IB.
If this doesn’t happen then you would wait till end of IB and follow our main rules for the day to trade the imbalance/balance.