The Nifty futures are a pretty close match to the Nifty index. And it kind of looks like the both the Nifty index and Nifty futures obey the resistance and support levels on their respective charts. I’m not sure why this would be the case, considering Nifty is just an weighted average of different stocks which have their own support and resistance levels, and which behave independently of one another.
Can someone help me wrap my brain around this? Any help appreciated.
Difference happens when volatility comes. But when every thing is normal you need to check lower timeframe to see differences.
See at the marked location, the pointed arrow shows a resistance which happened breaching the previous swing high. A perfect HNS.
Here the first resistance didn’t break in futures at all.
Also the trendline on the left is slight tilted in NIFTY and horizontal in NIFTY fut.
Smallish difference but significant.
If you want to watch something signficant difference you will find on 31st May. BankNIFTY.
BankNIFTY shot up. May fut shot up. June fut didn’t. Call writers of May expiry who hedged with June expiry ones got heavily punished because of asymmetrical rise.
My question isn’t so much the difference between Nifty spot index and futures. I’m asking why would Nifty follow support and resistance levels at all if it’s the weighted average of all stocks? For example, in your first screenshot, why would it the head and shoulders be significant at all?
For simplicity’s sake, let us assume that Nifty is the average of Stock A and Stock B. Stock A has a resistance at 150 and stock B at 250.
Instance 1: Stock A at 150 and stock B at 250. Nifty at 200. All three move down from this point.
Instance 2: Stock A at 150 and stock B at 250. Nifty at 200. All three again move down from this point.
Instance 3: Stock A at 125 and stock B at 275 (after breaking resistance). Nifty at 200.
Now, from previous instances, if we were to just look at Nifty resistance, we’d assume that Nifty would go down from this point, but this wouldn’t be the case (unless stock A and stock B also go down). Also, if the 200 resistance of Nifty gets broken, there’s no way we can say that it will run up to the next resistance unless we look at the underlying stocks.
So, my question is how is it that people are using support and resistance levels in Nifty?
I too had same doubt and i asked this question - Biggest doubt about Nifty index pricing , you can refer to this answer.
@unofficed : can you share your view on Biggest doubt about Nifty index pricing
@vishnux I checked out that thread. Is it the common consensus that big institutions defend Nifty levels? Is there any prevailing notion that we shouldn’t go bullish on a stock if Nifty is going in the opposite direction? If there isn’t, I don’t see why big institutions would care about the index at all.
Remember lot of algo trading goes on in market, so majority market may be moved by algos in normal times. And what do you think the inputs algos will be given? Its simple buy at weekly support ,sell at weekly resistance.
Buy what ? stocks or index futures ?
Buy stocks, then another code for buying futures based on Nifty rise
I am just guessing, must be some formulaes in the algo code
If your question is why support and resistance work. The answer is simple.
Market is made of people. People makes the price. Suppose you have a short and it is near support. Will you keep it open ?
More importantly will you short in the support without confirmation of support break ?
This is how psychology works.
That is not his question , if there is some support at nifty , people buy CE or Sell Pe or buy futures , none of this makes the nifty move up.But there is channel , support , resistance in chart of nifty