Friday, July 14, 2023

Nifty Options Trade Setup Volume, KST indicator, Bollinger Bands®

Volume profile along with KST Indicator and Bollinger Bands is classic technical analysis tools that help us to understand activity behind the scenes for Trading Options.

Below is the research as per Volume profile on Nifty which is moving in wave g as per Neo wave.

Nifty hourly chart – Volume profile.

Nifty 19000 Call Option hourly chart:

As can be seen on 1st chart Nifty is moving in form of wave g of Diametric pattern. Volume profile is different than normal volumes that most of the traders look at. In volume profile one can see big players activity and area where they are accumulating or distributing the stock. As we can see here there was major accumulation near the level of 17650 on Nifty followed by re-accumulation near 18350 and then again at 18700.

These levels act as important support now as big players will try to defend it. So as long as 18700 is intact medium term trend is intact on upside.

Options Trading using KST and Bollinger Bands – This is one of the most powerful way of trading to gauge if momentum is increasing and it is time to Buy options. For Options trader momentum and time are two most important thing.

KST indicator is a Time indicator and is derived using summation of multiple ROC.  We can see on the chart of 19000 call options that KST indicator has been dropping much earlier even before the prices turned sideways. This gave early warning that momentum is reducing.

Bollinger Bands – If KST line (green) is moving below the signal line (red) it suggest that prices can go sideways and so Bollinger Bands can be used to provide support and resistance and breakout levels. During such instance buy near support of lower bands and sell near hurdle of upper bands is the best strategy.

In a nutshell, Volume profile provides important support from medium term perspective to see possible price action areas and Elliott wave acts as GPS of the market. Then extending the concept of momentum trading with Bollinger Bands directly on options chart can give classic trading opportunity for Options buyers even for Intraday trading.

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