When I started my trading journey, I used to believe that to succeed in Markets, reading news and predicting market direction were the most important factors. Of course, these are important for many successful discretionary traders. But, for a new trader it is always better to start with system trading.
A positive expectancy system with a drawdown that suits your personality and emotional quotient should be the way to go for a new trader. The first step to making any strategy is to observe the markets and find trends that may repeat in the future.
With the evolution of data analysis, it has become far easier to analyze historical data and find certain trends that have high probability of occurrence. We tried to do one such interesting time analysis on Nifty.
What if we know beforehand the most probable time of Nifty making highs or lows. Can we find out the pattern in time of making highs and lows in the markets. Lets see.
Hourly Analysis of making Highs or Lows in Nifty
The following bar graph shows the frequency of making a high or a low in the following time zones:
- 09 – From 09:15AM to 10:00AM
- 10 – From 10:00 AM to 11:00 AM
- 11– From 11:00 AM to 12:00 PM
- 12 – From 12:00 PM to 01:00 PM
- 13 – From 01:00 PM to 02:00 PM
- 14 – From 02:00 PM to 03:00 PM
- 15 – From 03:00 PM to 03:30 PM
It can be clearly seen that most highs and lows are formed either in the first 45 minutes or last 30 minutes.
What is the probability?
This analysis is using the data from last 9 years of Nifty. Let us throw some light by finding the probability of market making highs and lows in a particular time zone using the above conclusion.
Let us first analyze the first 45 minutes of Nifty.
|Probability of making a high of the day in first 45 mins||39.09%|
|Probability of making a low of the day in first 45 mins||32.05%|
Now, let us go to the last 30 mins and find whether the probabilities of making highs or lows in the last 30 minutes.
|Probability of making a high of the day in last 30 mins||21.48%|
|Probability of making a low of the day in last 30 mins||18.21%|
This doesn’t seem to be very encouraging. But, what if we mix both the timings and find the probability of making a high or a low of the day in the first 45 mins or last 30 mins. We get something that at least beats the odds of winning a toss.
|Probability of making a high or low of the day in the first 45 mins or last 30 mins of the day||55.28%|
Out of 2223 trading days in the last 9 years:
- Nifty has made a high of the day for 449 times i.e., 20.19% of the times in the first 1 min candle itself.
- Nifty also made a low of the day for 299 times i.e., 10.30% of the times in the first 1 min candle itself.
The question is, can we make a profitable trading system using this analysis? If yes, do write to us about your strategy based on this insights and our team at MarketScanner will try to backtest the system and find whether the system is profitable or not.
Until then, happy Trading!