coupl of issues with nifty futures. premium fluctuates and sometimes goes into discount , this may result in 'false' NR7. In my view we shoul also check spot and if both confirm NR7 then it gives us more confidence
how do u handle the expiry? we approach the expiry, cuent month and next month may have some variations, the premium o curent month would be neaing zero whereas prem of next month would be at highest.
i think this may work well for some strong nifty scipts like SBI, RIL since cash price will not have above issues. but problem is we cant carry cash positions to next day(s) unless you take delivey
i like suunil's idea of opeing long/short stradle/strangle on the formation day
Bandlab, Your doubt is valid regarding getting uniform futures chart where contract expires and positions shift from one contract to next.
There are different methods to create continuous future chart like taking weighted average price of all futures contracts and calculate new prices etc .. (but lets skip that complex topic here).
Because we use futures data to make actual trade, hence we shd look at taking the latest price of futures contract. Even if there is prem/disount on price, the range variation should be more or less same.
In real trading, If SPOT and futures gives same signals then certainly they are rightly aligned, but if there is difference (i.e. one is indicating NR7 but not other), then we need to look deeper and see what is going on. Probably this difference is only by few points plus or minus /near expiry / large gaps etc.
In my view, it is better to make reasonable assumptions for backtesting and going forward, rather then looking for 100% perfection and going nowhere.
I also agree with the idea of opening a direction neutral position on NR7 day as mentioned by Sunil. That is something that I placed on my 3rd post of this thread as well.
Happy Trading