This is the most common of the different day auctions we see in Market Profile. On this day we will see a range extension outside the Initial Balance and often the market continues it’s probe on the same side as the break of the initial Balance and goes to complete the probe by extending to 2 times the Initial Balance Range ( high to low) and in some cases even 3 times of the IB
We also see the value built higher/ lower on such days and is a pointer for continuation in the coming sessions.
This is again a Day based on the Initial Balance or IB.
In this day we find the Initial balance is slightly smaller than a Normal day or a Normal Variation day. Price makes a move away from this initial balance early in the session but is not successful in creating a good range extension. It then comes back in the IB and travels through the IB and makes an attempt at a range extension on the other side of the IB.
Accordingly based on the second attempt of the range extension we have 2 types of Neutral Days
a) Neutral Center: In this type of day the second attempt of the range extension is also not successful like the first one and the market comes back into the IB and closes near the day center or midpoint or even Vwap or Dpoc. On such days we consider both the buyers and sellers as equal in strength and the close in the middle as a fair close.
b) Neutral Extreme: In this type of day the second attempt of the range extension is successful and the market finishes the day at one extreme which is often the day’s highs or lows as the case may be. In this day type, either the buyer or the seller is considered more stronger than the other and gives us a very good context to watch for continuation.
This is characterized by a narrow range day with a fat profile. There seems to be random rotation with little price movement on either side of the profile, thus developing a short and fat profile.
These days can occur prior to important announcements, long weekends or holidays, or at market exhaustion points. Most traders will simply complain that the market is choppy and untradable on these days.
It is when the market is making a narrow range that a large range, and possibly trend day, will occur in the next day or two.
A trend day will usually begin with a small initial balance, However, early in the day structure range extension occurs. This range extension does not allow a value area to develop in the initial balance, and the range extension continues throughout the day. These days are seen as having Higher Highs and Higher Lows ( OR LH/ LL) in every 30 minute period.
There are often periods of single prints on the profile. Most importantly, there is very little rotation from time period to time period. In other words, each half-hour segment drives prices further in the direction of the trend.
Sometimes one of the time segments will have a bit of rotation in the opposite direction, but the price usually will resume the trend. In such cases, we keep an eye for a pullback high or a pullback low to develop which is the afternoon adjustment of inventory. The range of a trend day is wide and the profile absent, the rotation is thin. Obviously the open will occur at one end of the trend day, and the close will be near the opposite end.
A variation on the trend day is the double distribution trend day. This day starts off much like a trend day, however, there begins a rotation with a bell curve beginning to develop in the initial part of the day. It appears that more of a normal variation day will come about.
But then new information enters the market and range extension occurs and drives prices to a new area. At some point the move is shut off, usually overshooting, and then another bell curve begins to develop. The resulting profile will have two areas of price rotation, which are usually separated by an area of single prints.
These days can often occur on surprise announce or event occurs. The market goes from balance to imbalance as the news drives the market to a new level, and then back to some sort of balance as the informationis digested.
In the chart above we see a 30-minute bar of an instrument which tells us about the movement of the underlying in the color of the bar and a few patterns of the bar called candlestick patterns which are dependent only on the relation between the Open and the close of the bar. In candlestick charts, the entire focus goes on the close of the bar which determines even the color of the bar.
In the Market Profile chart on the right, we see a lot more information and is a truer representation of the process of the buying and selling which has occurred in the market. We go much beyond the Open, High, Low and Close of the bar and the Market Profile gives us more information in terms of where the market has seen the most number of transactions and which part of the day was dominated by the Buyer or the Seller the most.
The Market Profile approach to trading is a truer approach giving a clearer X-ray view to the trader of the Buying and Selling actually happening. It also allows us to know which Time frames are active and we get an insight into their inventory positions, participation, emotional trading etc, not available in traditional charting patterns.
This detailed examination through a Market Profile chart can allow traders to cut losses, decrease risk and increase the chances of profitability in their trading.
Where to watch these Market Profile charts Live?
The Market Profile charts are available for a view in the Vtrender Trading Room. You can see the charts Live in the working hours of the exchange with zero delays. Interpretation and Analysis of the chart in a Live Market Situation is done by active traders and you can also see how they utilize the information to make live trades with the information as it develops.
We also use an advanced form of the Market Profile which is the Volume Profile and have specially crafted Market profile Trading strategies and Volume Profile trading strategies unique to the Room.
A preview of the Vtrender Trading Room and it’s benefits is at – https://vtrender.com/wp-content/uploads/2018/09/Intro-2-VTR.mp4
A bit more on the Market Profile with the Terminology
Timeframes: The market profile recognizes five distinct types of individuals who operate in the markets. These are a) Scalper, b) Day trader, c) Short-term player, d) Intermediate-term player, e) Long-term player. Each of these individuals have a perception which they bring to the market and this perception helps move the markets. The scalper and the day trader are responsible for maintaining the liquidity of the markets.
Value: The perception which all of the above-mentioned players bring to the markets after the bid-ask process helps build what we call “value”. Value is different for each of the mentioned players and they will move the price up or down depending on this perception. For example, if the intermediate term seller thinks that the market is overpriced he will jump in to move price down. On a daily timeframe, the period where 70 % of the volume action takes place is defined as the value area. Similarly, we have a weekly and a monthly value area.
Buyers: Individuals of any timeframe who feel that the present market is underpriced and therefore less in value. These individuals will move price up.
Sellers: Same role as the above except they think that the market is overpriced and will move the price down.
Auction: The activities of buyers and sellers recorded through the bid-ask process is called auction. The auction results in the formation of the value area which the buyers and the sellers agree as the fairest value for the day. As the auction moves away from the value area, buyers and sellers change their definition of value. If higher prices are agreed upon in the auction, the value is supposed to move higher and consequently, the market moves up.
Selling tail: The failure of the auction at higher levels to attract new buyers results in the sellers swiftly moving in forming what is called a selling tail.
Buying tail: The same activity as above, but in the opposite direction. The bigger the size of the tails the more aggressive is the action/ reaction.
Point of Control ( POC) – This is the region where the most activity occurs during the day and has a high volume around it as a result. This POC is also considered the fairest price of the day or the week. The POC is measured across daily, weekly, monthly and even yearly time frames.
Developing Point of Control – The POC of the current day developing
Excess: A buying tail or a selling tail is also called an excess . The excess is the end of one auction and the beginning of the other.
Poor Lows/ Highs: This is an area which puts an end to an existing auction through exhaustion rather than an excess. It is also called an unfinished auction and price returns back to this point for a fresh probe after a small pullback.
Pull back low/ high – This is a very important concept in a trending day especially where the market recovered from an initial probe midday to check on old inventory. Participants use the pullback to adjust positions for the trend of the day. The Pullback high/ low is important for the rest of the sessions also as it is associated with inventory.
Bell curve: The proper statistical distribution where the POC is placed in the middle of the profile chart and 68.7% of the day’s trading Volume is on either side of this POC. On the charts, it looks like a Bell kept sideways and hence called a bell curve
Balance: A region where trade is contained and the price does not move vertically. This area is also called Value. A balance occurs in all timeframes. A balance is also the end of an auction. Excess and balance are considered opposite terms in an auction
Imbalance: The opposite of a balance. Price breaks away from a balance to form an imbalance. Either the Buyer or the seller is more aggressive when an imbalance happens
Initial balance: The first 60 Minutes of a trading day is called the initial balance. As the name suggests, the IB tries to set up the day’s balance or define the value for the day.
Range extension: The movement away from the initial balance is called the range extension. Success or failure of the range extension gives us an indication of the type of day unfolding.
Spike – The movement in the last hour of the day is called a spike. A spike is an auction which is not complete and hence unverified. This happens mostly due to exchange closing hours. The next day needs to be watched for confirmation/ rejection of the spike. More – https://vtrender.com/spike-rules/
Initiative activity: Control by the buyer or seller in the trading day is called initiative activity. As the name suggests, the action determines conviction on the part of the players to move the market. The strength of the initiative activity is useful to determine which party will have a role to play in the day
Responsive activity: This is a response to Initiative activity, the strength of which can determine changes to the trend of the timeframe.
One Time Frame behavior: A trending situation or an imbalance driven by Initiative activity
The Market Profile approach to Trading is discussed extensively with Live Market Analysis in the Vtrender Trading Room. We have a large community of Market Profile Traders who come together to watch the Market profile charts and discuss trading strategies for intraday and positional trading based on the information provided by these unique market profile charts.
For the week ahead, let’s look at the same chart updated :
This recent downmove began when the intermediate seller showed up at 5060 levels Hence 5060 has to be taken out by the bulls for a reversal to happen. Above 5060 you can get a quick move to 5162-5172 levels where a pause and a rethink are in order.Before we get to these levels though, the first hurdle is at 4955-69 followed by 5010-5015.
On the downside, 4887-4870 are important supports followed by 4824.A close below 4824 you can expect 4660 levels immediately.
Hull moving average :
Viren has suggested that those using sma’s and ema’s in their charts move to HMA or Hull moving average.The Hull Moving Average eliminates lag and makes the average more responsive to current price activity whilst maintaining the curve smoothness. I will post charts about the advantage of HMA v/s EMA and SMA in my next post. Till then..
This is a longer term chart and plots the 13 ema over the 34 ema with a MACD thrown in for confirmation.At today’s close the red is still over the blue and the MACD still in positive territory above the zero line.
Notice the confirmations for bears in April 2008 followed by a strong move down and the reversal in April 2009 followed by the strong move up.
So all hope is not lost for the bulls. Watch this cross-over carefully.