Analyzing Options Distribution Data to identify market range for the series

As we near the end expiry of an extremely volatile month with a little more than a week to go. Options accumulation zones from here on can be a key indicator to identify where markets are headed.

Often combining one’s trading systems with options accumulations zones can give very good low risk opportunities of more confirmed trading levels.

Rules for understanding options accumulation:

1.    The significance of options trading zones accumulation will increase more towards the series expiry so consider this as an input only during the second half of the trading monthly cycle

2.    Identify highest zones of PE accumulation by volume. The higher the volume indicates more PE writing at those levels. This forms the base and is an indicator of support levels.

3.    Identify the highest zones of CE accumulation. Similarly they represent the CE writing levels and forms the ceiling or resistance for that series.

4.    Mark these levels in your charts and use them with your existing systems to take more confirmed entries.

So what is the current situation for Nifty Futures for August series

As always let the charts tell you lot more than the words:

NIFTY OPTIONS Accumulation data- 20th Aug-2013 View

Charts data interpretation:

1.    The highest PE accumulation is at 5300 trading zones indicating that this is a strong base and we may not go below this level on a closing basis for this series. Hence it can be used for pull back contrarian longs

2.    CE accumulation is distributed evenly around 5500-5700 zones indicating that at every level we will face resistance on the upside and at the same time this doesn’t present a clear picture at this stage for upside levels. The highest CE accumulation is at 5800 levels almost confirming that we may not breach that level on the upside and it will form a good SL swing wise for rises upto near that level.

The same technique can be used to analyze other index futures and stock futures for a ready reference and will help in one’s trading decision making.

Mastering Nifty Fut with Trading Trend lines & Price channels

NIFTY FUTURE- Review of 13^th Aug and Update for Next session

We all use various kinds of analysis and technical tools and techniques like( Fibo, gann, price point analysis, Trendlines etc) to find out patterns and making projections for the next move.  At times we use multiple tools or techniques. They give a dual advantage. One is many a times one of the techniques seem to work well during phases and secondly also that a confirmation of a level on multiple techniques serve a double confirmation for trades.

Now the fun part is most of the times the simplest of the techniques work best.  Trendlines is one of the classic and time tested techniques in the markets. TRENDLINES along with price channels form a very good combination and give a strong idea where price can be headed. They can also be utilized to get an idea of stops when one wants to trail the trades.

Let us review NIFTY charts based on price channels and trend lines. Today 5635 levels formed multiple trading confirmations to ensure a clear breakout and once NIFTY FUt managed to trade above that range it gave a clear confirmation. Let the picture tell the rest of the story..

NIFTY Future Charts-13th Aug. Price Channels and Trend Lines

So where is it headed from here. Longs will hold good until NIFTY fut manages to trade above 5665. Managing to trade and sustain above that can ensure NIFTY Fut goes on to target the levels of 5765 and 5830 on the upside price channel trends. On the downside a breach of 5665 will ensure a re test of 5635 and lower levels. 5635 will form the downside pivotal level on the downside a breach of that will ensure a confirmed renewal of the downtrend.

Trading levels for the day:

POWERTRADE BEARS LAST STAND POINT OF THE DAY ----- 571  0-15  sustaining above which it will target 5735, 5765,5830
POWERTRADE TREND DECIDER OF THE DAY ------- 5665-70
POWERTRADE BULLS LAST STAND POINT OF THE DAY------- 5635-40
Breakdown and sustaining below POWERTRADE BULLS LAST STAND POINT OF THE DAY will open target for support of ---- 5610,5570

NIFTY FUT handle volatility with money management and agile trading

NIFTY FUTURE- Update for 2^nd August

NIFTY Fut had a terrific volatile day where we saw a gap up move and at the same time it cracking to break across yesterday’s low and barely managing to close above the critical 5755 trading levels.

One more interesting thing to observe that markets failed to make a sustained move above 5835-40 trading levels. Regular readers of the blog will recall that this was a critical levels that we have discussed many a times.

An important thing to observe is that markets failed to close above the 5770 trading levels.

For the next session the levels of 5770-5755 will be extremely critical to watch out for and any break of this level can resume another leg of downside.

On the upside markets need to pull back above 5800 to show any signs of strength else all rise will be challenged.

Coming back to the volatility. During volatile times markets range increases, we generally tend to see  this during results season or times when we have a high impact news. A way to handle risk here is vary the lot sizes based on the stops that you see. The stop loss range tends to increase because of increased trading range.  Reducing lots with increasing stop loss is a way to go. This is aptly compensated with increase target ranges as well.

Also one should be agile enough to switch positions if the trading range demands so A classic case was today when we saw a positive sentiment for first couple of hours and then the trend reverse significantly.

Trading levels for the day:

POWERTRADE BEARS LAST STAND POINT OF THE DAY ----- 5800-05 sustaining above which it will target 5830,5860
POWERTRADE TREND DECIDER OF THE DAY ------- 5755-60
POWERTRADE BULLS LAST STAND POINT OF THE DAY------- 5730
Breakdown and sustaining below POWERTRADE BULLS LAST STAND POINT OF THE DAY will open target for support of ---- 5700,5665