NIFTY - Scalping Set-up - 03 - Afternoon Range Extension

This is in continuation with the scalping set-ups series. 

The first one being (

The second one was (

The third setup we will discuss is called the Afternoon Range Extension (ARE)

1. What determines entry?

There are two key factors to consider when entering this trade

a) Range - You need to check the pre noon ie pre 13:30 range. The mean of which is around 60. There are three possibilities, one is we had a very narrow range in the first half or we had a super normal / very high range in the first half. While the former is good the latter obviously reduces the probability of an A.R.E. Lets take a look at both these conditions.

If you look at the figure 1 below the day had a narrow range of 27 till 13:30 post which we got an over all range of 63.75. So if you look at it you will see that 42 % of the range was formed in the morning and balance 58% in the afternoon. 

So the key factor to consider for entry is the morning range.

2. What determines the target and exit?

Now lets do some basic arithmetic, the mean % of range that forms in the first half is 71%. So if you work that backwards 27 * 100/71 = 38. Which means (38-27=11) a 11 point extension is possible even if the the index remains in low range at large.  

You could use other statistics to guide you? For instance

a) What has been the mean extension on days with under 30 range in the first half?

b) How many days in a given year does the index remain within the range formed in the first half?  Of which how many days does the index remain in a narrow range within 30 itself? Is it an event day? Is it an expiry day? 

c) On days when range extension happens in the second half? At what time does it peak before it pulls back or reverts to mean again?

NIFTY FUT - 19th Dec'17 - Fig. 1

Getting these numbers right helps us form a probabilistically informed structure to work with. 

That is exactly what we attempt to do collectively in the NiftyScalper Trading Room.

Hope you found this useful. Back test it if you would like? I am sure you will see an edge here.