Nifty Volume profile and combining with Open Interest Profile

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Nifty Open interest analysis and Volume profile is one of the best technical analysis method that can be used to identify the key reversal areas and price action support zone.

In below research we have applied Nifty OI profile along with simple channel and the highest volume price points.

Nifty hourly chart:

Nifty after forming a low near 15880 levels showed a sharp rise on upside. It has been 8 days since then prices have not closed below the prior candle low. Today, so far we can see break below the low decisively but closing by end of day will be important.

As per the channel the lower trendline support is now near 16250 levels. Highest Volume profile or Point of Control (POC) is also lying near the levels of 16260. This is also the zone which was acting as strong resistance before prices broke out on upside. So given the cluster of evidences there is higher possibility of 16250 - 16260 acting as very important support area.

Open Interest profile – We can see that 16500 has shown highest change in call Open interest which means crossing above it is not going to be an easy task. Call sellers are aggressive at this level. On the other side there is reduction in Put OI side (seen on right hand side red area). But put sellers have so far not completely given up. Any sustainable move below 16340 might result into further selling pressure but as long as this level is intact we can expect attempts by bulls again.

Thus by combining OI profile, Volume profile, Channels, Price action area we can conclude 16260 – 16500 as the zone for now.  With this information one can formulate Option trading strategy. We have tweeted yesterday @kyalashish to form short strangle strategy which is already making money even in this type of markets. Thus options are powerful instruments that can be used to trade in any type of market environment.

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