Month: May 2010
What are the different types of days we see in Market Profile?
The Market Profile represents a few different types of days. A good understanding of the different day types and your ability to spot the kind of day developing by 11.30 am or even by 1.00 pm gives you a very big edge into what to expect from the market at the time of the close around 3.30 pm.
Understanding different day types is a very good Market Profile Trading strategy and can help your account significantly to close with good profits by 3.30 pm.
Normal Day
The most basic day structure is the Normal Day. It is easy to follow and understand as most of the day activity is in the initial Balance or the first 60 minutes of the day session. On a Normal day, the bell curve also develops within the range of the initial balance( IB) and does not go much beyond the initial balance. There is often limited range extension and the market returns into the IB for the close.
( To understand the different terms like Initial Balance etc look up – https://vtrender.com/market-profile-terminology/)
Normal variation day
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.
( To understand the different terms like Range extension etc look up – https://vtrender.com/market-profile-terminology/)
Neutral day
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.
( To understand the different terms like vwap/ dpoc etc look up – https://vtrender.com/market-profile-terminology/)
Non-trend day
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.
( To understand the different terms look up – https://vtrender.com/market-profile-terminology/)
Trend day
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.
( To understand the different terms like Initial Balance/ Range extension etc look up – https://vtrender.com/market-profile-terminology/)
Double distribution trend day
What is the Market Profile?
The Market Profile is a 3-dimensional approach to trading the markets. Historically only price has been used to graph market activity and we see this in the traditional bar and candlestick charts which are common amongst traders. The Market Profile approach is to plot Price, Volume and Time together on one chart. Price is measured on the vertical or Y axis and Time is measured on the horizontal axis. The interaction of Price and Time creates Volume which is measured on the chart directly.
The Market Profile approach is to view the movement of the market as an auction which has both Buyers and Sellers trying to outdo each other or arrive at a fair price which is called the value of the market.
To build the auction, one has to understand clearly that
a) Price – advertises opportunity. ( and not all price is value)
b) Time – regulates this opportunity
c) Volumes – Measure of the market to tell us whether the opportunity was a success or failed.
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.
The Vtrender Trading Room is at-https://vtrender.com/trading-room/
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
Different day types – Covered in detail here at – https://vtrender.com/market-profile-day-types/
Vwap – This is the weighted average price of the movement of the instrument. It is calculated by using the ratio of price multiplied by the number of shares divided by total shares traded
Close: The final auction of the day
Open The first auction of the day. If there is a large difference in the open and the close then again the perception of value in the market has changed. More types of open are at – http://vtrender.blogspot.com/2011/02/market-profile-glossary.html
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
You may wish to check a few more writings on Market Profile on this blog. Look up for more Intraday Trading strategies and Other Market Profile trading strategies – https://vtrender.com/random-musings-on-market-profile/
There is also the newest information on the evolution of Market Profile at – https://vtrender.com/market-profile-the-evolution/
5065 was the level we had mentioned one week back where the intermediate seller had showed up and managed to take the market all the way to 4785 levels.This was the action on May the 19th and documented here.
The gap down from this level, will be matched up with a gap up.
But need to see this level resolve for further direction.
5065 is on watch. We will see rotation at this level today.
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10.13
Description : short Nifty June
Price : 5032
Sl : 5065
Target : 4990.
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10.28
@ All,
I have modified the comment settings to include your ID when you post comments. Please comment with a user name. I don’t want to be talking to several anons, without knowing one from the other.
Please oblige for the mutual benefit of all.
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10.42
Take some profits off the table here at 4999.
keep Sl for remaining at 5020.
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10.47
We were targeting 4990, we have got 4996 so far.
The seller has shown his hand from the morning and his inclination to defend his territory near 5065. It’s now upto the buyers to stand up.
5020 and 5035/45 are some short term reference points for the bulls.Need to climb above them.
This will be a volatile 60 point range and a battle zone. so trade quickly and keep booking profits when you see them.
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11.05
Posting an intra chart of Nifty spot 30 mins. The shaded blue is the value areas.
The shaded blue areas are the value areas.
Price above value infers that buyers are in control. However on a longer term chart, you can see the seller’s footsteps, with the succession of value being driven lower.
The buyers have gotten stronger recently. Three value areas showing up move.
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11.28.
Trailing stop at 5020 taken. make an exit.
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12.12.
Interesting action so far.
Sellers ( or bears in your terminology ) have tried their hand at a lower range extension and failed.
Now Buyers will make an attempt.
5035/ 5045 will be short term reference lines above which is the crucial 5065.
Above that there may be a slight pause at 5092, beyond which we will get 5172 easily.
On the downside 4990 is first and then yesterday’s 4967/ 4952 which should provide support for the market.
Trade accordingly.
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1.11
No resolution yet in the day time-frame.
Buyers have not managed to take the initiative.
Markets trading between 5005 and 5025. We’ll wait.
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3.10
I know it’s been a tiring day of trade today, with no clear indications of short-term direction.
Sometimes the market goes through these kind of days digesting information.
We just have to wait and see it resolve and base our decisions on the message the market gives us.
Let’s not be compulsive traders and trade just because the market is open.We will have plenty of good set-ups in the coming days on both sides with risk-reward ratios favoring our style of trading.
Today’s session has been a neutral day with range extension on either side which failed.
Bias is divided and the market will give us fresh inputs on Monday.
We have our levels and we will react accordingly.
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The markets have moved between 4855 and 4887, two of the pivots we identified yesterday.Refer to this.
The move which we were waiting for yesterday, has materialized today.Never mind.
I was clear that a break of 4824 did not present a good risk-reward opportunity for a short in the short term.
I’ll post some short term charts shortly.
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11.44.
Trade Alert : Nifty
Description : Buy Nifty
Price : Above 4891
Sl : 4870
Target : 4922
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12.00
On the downside 4844 needs to be protected today by the bulls.
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12.03
The market is not efficient; however, the mechanism
for establishing the current trade-able price.
I am just returning to my inbox after a two day hiatus from the markets and am overwhelmed with the volume of mail I have received for the newsletter and the market profile study material.
To those who have written to me about their views, I will respond to each and every query of yours.
This blog is always been about you. Infact you will not find a profile of me or Viren or what we have done.It’s not important as we are more about the difference we can do to you rather than what we are or were in the past!
I knew that we had a silent majority of observers out there. I too was a silent observer when I was learning the ropes, silently going through blogs, never once appearing in the comments section and hoping that somebody else would ask that question for me.The blog would always be a means of communication and a real-time network between all of us, but the emails would be for you to step out, ask questions and seek answers.
We decided against the open link, as a one-time download will not help you understand the subject ( which is huge) or have doubts. Instead we will look at one aspect every week, give you the opportunity to ask questions and move along as a group searching for real time situations of the study during the week.We are ready to roll-out the first study tonight.
About the newsletter, Viren is just finishing with a training program and would be free shortly to start work on that.Look forward to that one.
Last week if you had followed our views in this post here, you would be a happy man today.
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..
