Market profile is way of life

Its a poor odd structure in the profile.This usually happens during emotional run of price by weak hands.Formation of anomaly suggests not a proper distribution i.e, price auction due to emotional price move.It leads to assymetery in the profile and likely to get repaired sooner in same session or quickly in a session or two. There are two type of anamolies. a) Price level anomaly - Particular price zone where such poor structure has occurred b) Single price anomaly - At specifi price point such anomaly has occurred Marked anomalies in the image below.Bottom circle shows price level anomaly and upper circled zone in the image shows single price anomalies.

ATR = Average true range Its a simple data arrived from day high and low with relation to last few days (I consider 14days period) high and low to gauge the market volatility.This helps to determine day's range projection and invalidation zones.

Purpose of market is to facilitate trades between buyers and sellers and such activity happens by balancing in the specific zone by up and move price action or happens via imbalance by moving from one zone to other zone quickly.These balance and imbalance price action activity to find a fair value of price on given time frame is called as auction.

Market activity is to facilitate trades between buyers and sellers to find fair value of the instrument.This happens via auction and such auction if happens with pushing price up and down in more or less between specific price zone then such kind of auction is called as balance. In other words, price auction happening in W shape or in M shape between a price range for a prolonged period of time is called balanced auction. Usually once balance is done, market moves to imbalance i.e, travelling away faster from the balance zone.Auction in boxed zones in the below chart are known as balance.And marked in arrow are imbalance auction of price moving away quickly from balance.

When market is making a balance for a prolonged time within specific price range, we call such balance i.e, V or W shape up and down price auction within that range as bracket.

Merging of multi day profiles is called as composite.In other words,when market is making a balance for a prolonged time within specific price range, we call such balance i.e, W shape or in M shape shaped up and down price auction within that range as composite.

Its a profile structure of two disntant balance with extension single separating two balance. After having neat balance in first session, if price gets extension handle/singles and moves away from well established balance to form another balance distant away from previous accepted balance is called double distribution profile/day.End of the day profile gives us two disntinct balance separated by extension handle/singles. Double distribution profile is a not good structure to lean on for sustained further move in subsequent days.

refers the point of control of the day in progress (refer POC for more explanation)

Mostly retail traders who trade based on visual ref zones such as prevous day high,low,weekly high/low,monthly high/low etc..They look for compulsive trades around these such visual ref zones.They mostly trade for very short term moves and could not move market beyond certain levels.

refers the value area high of the day in progress (refer VAH for more explanation)

refers the value area low of the day in progress

Large single prints formed outside of the recently traded/balanced zone and rejects price quickly back into old traded zone is called excess.This occurs when other time frame traders enters market when price has gone too high or too low. Excess is strong reversal sign of ongoing trend.It usually ends old auction and starts new auction.

Zone from where fresh breakout/breakdown happens from balance.Good support/res zone going forward.If extension handle is closed i.e, probed back then the extension happened is by poor hands and signals reversal.

Extension if happens through imbalance away from balance then it leaves single prints which is known as extension singles.Its sign of fresh inventory coming into auction and tracking extension singles would confirm if this is fresh commitment or emotional weak hands.Acceptance back in extension singles by balance is sign of reversal.

When price moves away from initial balance (first one hour range of the day), meets quick rejection and pushed back into initial balance to probe other end of initial balance means that rejection zone is called as FA-Failed auction. For example, 9000-9100 is initial balance range, price moves down below 9000 but fails to sustain below 9000 and rejected then reaches 9100 later in the day means then low marked below 9000 is marked as FA.Here quick rejection means, price should not sustain beyond 30mins outside IB range. Once FA is confirmed it becomes good swing ref to carry forward that info.During trending markets FA is a good sign of other time frame traders entry and they could push markets in one direction.During rotational markets, FAs mostly gets a revisit.

Mid point of the period.i.e, (High-Low)/2 of any specific period.

Most traded zone by time and volume is known as HVN.More overlap around price zones during auction leaves such high volume nodes.If such HVN zones are arrived from multi day profiles such as 20days or 50 days then its called composite HVN. Such HVN zones tend to attract price back when price tries to move away from well established balance zone.If HVN zone is started rejecting price means its sign of fresh trend to emerge. Below is the chart of 20days composite range marked with few HVN zones.Usually HVN zones are good place to consider as destination zones to book the exitsting trades as it takes time and volume to move pass further from such HVN zone.

First 60mins of the day’s range is known as initial balance.This is important period to adjust old business vs new business inventory and mostly IB sets the tone for the day (some use 45mins as IB period).IB range and volume in the IB range helps to estimate day type and day range.

High of first one hour period of the day

Low of first one hour period of the day

Market activity is to facilitate trades between buyers and sellers to find fair value of the instrument.This happens via auction and such auction if happens in a one way swift move i.e, trending then its called imbalance. Usually once balance is done, market moves to imbalance i.e, travelling away faster from the balance zone in a swift way.And, once imbalance move is done market gets back to balancing activity. Balances takes more time and imbalance auction ends quicker comparatively.Auction in boxed zones in the below chart are known as balance.And marked in arrow are imbalance auction of price moving away quickly from balance.

When participants see the potential that price could travel further,they enter and initiate the efforts to extend the existing trend which is called initiative auction. If initiative auction is buying then its called initiative buying and players are called initiative buyers. If initiative auction is selling then its called initiative selling and players are called initiative sellers. Explained in the below image.

Positions held by traders

It is good form of excess by profile structure. When a ongoing trend gets complete isolated profile at the end of trend and price reverses from there in next session means that isolated profile is known as island profile. Its a sign that other time frame traders distributed (if at top)/accumulated (if at low) on that profile silently to end the on going trend to reverse auction in opposite direction to probe back the entire prevailing one time frame move quickly. So key words are, 1. on going trend in one direction 2. complete isolated profile = Island 3. reversal of trend quickly.

Buyers exiting their positions

Day/short time frame traders are referred as locals.Mostly retail traders who trade based on visual ref zones such as PDH,PDL,Weekly high/low,monthly high/low etc..They look for compulsive trades around those such visual ref zones.They mostly trade for very short term moves and could not move market beyond certain levels.

Least traded zone by time and volume is known as LVN.Quick rejection of price during auction leaves such low volume nodes.If such LVN zones are arrived from multi day profiles such as 20days or 50 days then its called composite LVN. Gaps,tails,extension singles etc cause such LVN zones.Such LVN zones tend to reject price when price tries to retest it first time.If LVN zone is started accepting price with balance means its sign of old trend to reverse. Below is the chart of 20days composite range marked with few LVN zones.Usually LVN zones are good place to consider initiatinge mean reversion trades when price is testing the zone first time.

Balanced activity of market i.e, up and down auction in W or M shaped for a prolonged time in smaller time frame is called as micro balance.

Type of day where initial balance (first 60mins) extends one side first but gets rejected and probes other end of initial balance.So,initial balance gets extension at both high and low of initial balance period and failed. Responsive players at both end of initial balance to find a fair value.Mostly volatile and chop day due to two way auction.Usually signals end of balance and start of fresh trend. Neutral center : When such day closes around day mid/VWAP/dPOC then its neutral center day. Neutral extreme : If one set of players gains control and closes the day at extreme of the day, its neutral extreme day.

Day type with absolute narrow range,low volume and slow grind day with no momentum all through the day.No effort to extend initial balance done in first 60 mins of the day.Lack of participation from most of market players.Mostly occurs before major known event or during major holidays season.

Type of day where entire day's range is settled within initial balance range i.e, first 60mins period range.Usually happens after a big move in previous session to digest new price zone.

Day which holds one end of initial balance and extends other end of initial balance. i.e, normal variation up day means, initial balance low (first 60mins period low) holds and price extends above initial balance high (first 60mins period high) later in the day. Day type which occurs mostly in any type of market cycle.

After making a balanced day, if price moves away from balance and starts trading way above or below from such balanced profile then till probed back, such balanced profile's POC is known as naked POC (also a virgin POC). Boxed zones marked on the chart below are naked POCs and circled ones since already probed back via auction they are no more naked POCs. These naked POCs act as destination zones when price is moving in the direction towards naked POCs.

When market is moving in one direction without a pullback then such activity is called as one time frame -1TF move. For example, if 30mins period is moving with only higher high for subsequent periods without breaking previous bar low then its called as 1TF up in intra day period.If daily profiles are moving with higher high means its called as 1TF on daily charts.This is sign of strong presence of committed players in the auction. Below are images which show one time frame in intra chart and daily chart. Intra chart - periods B to H are 1TF up and when such auction is going on, mean reversion trades can wait. Daily chart - one time frame in daily time frame - 5 days of one time frame with higher high and not moving below previous session low.

Type of market open.Price opens inside previous session's range/value and auctioning up and down in a relatively narrow range with low conviction and no intention to extend much beyond open range. Higher odds of rotational market ahead (overlap with previous session range) for first session at least.Dominated by short term traders and mostly rotates around visual ref zones such as value areas or range extreme of previous session or developing value area etc

Type of market open.Price opens out of range of previous session or around extreme of previous session (high or low) and auctioning up and down to find fair value without accepting inside prev session range (non overlap with previous session range/value). Its a auction which digests the open outside the previous session range then decides later in the day, whether to extend further to stay away from previous session range or accepts back inside previous session range,depends on commitment of players.

Type of market open.Open drive is sign of committed players usually other time frame traders drive market right at open in one direction swiftly.They are well convinced before open of market to take control of price at open. Open drive days ends with tail at open side and value higher above tail and usually ends at higher quadrant of the profile i.e, above dPOC/mid point of the day. Its a sign of other time frame traders presence and control over market.

Type of market open.Open rejection reverse is a low conviction move from open then met with convictional responsive players to reverse the auction happened since open. For example,if market moves upwards since open but halts with some exhaustion may be due to the fact that short term traders were chasing price and now left with no demand so failing to get follow through.Now sellers find the opportunity and enters market to reverse the price through the open price and make it further down later.This is called ORR.

Type of market open.It starts exactly like open drive.Presence of convictional players right at open to drive price swiftly in one direction but met with equally convinced opposite players to shut off the open drive and reverse the direction of the initial drive in a same swift way. Here the swift is the key term. Open and drive then rejection and drive in opposite direction both happens in swift way.Sign of other time traders presence in market.

This term is used to refer larger time frame traders such as institutions,long term investors etc kind of smart money who make bets for longer time frame.

Low made before making new swing high

High made before making new swing low

Previous day high

Previous day low

Poor high : Short term traders during intra day auction meets exhaustion when unable to get follow through around established high of the day after repeated attempts.This kind of exhaution around a specific price zone leads to leaving high of diferent period (30mins TPO period highs) around same price zone.This is called poor high. Its like price marks day high first, then trying to clear that previous established high later in another period but while reaching there fails to get demand and stuck with another set of buyers,then comes down for balance again.When such kind of auction repeats and leaves different period highs around more or less same price zone, we get more than 2TPO periods leaving similar high which is termed as poor high. Check below chart for clear understanding.D period marks day high then goes for balance and when H and I period tries to clear D high but unable to do so, it leaves poor high around D period high.Finally such exhaustion pushing those buyers from all day balance between B-I period to go for liquidation towards close of the day. As its a sign of dominance of short term traders in the market who fails to get follow through, immediate reaction after such poor high is liquidation from such traders.Though first reaction for poor high is to look for pullback, most of the cases such poor highs will be repaired later in same session once weak hands from exhaustion are removed. If not on same session then sooner in next few sessions.As the poor high not made by other time frame traders but only by short term traders, mostly price could probe back and repair the poor high and travel further till it gets secured high. Poor low : when similar auction as explained above if happens at day low then its poor low.

During rotational markets, due to sharp emotional liquidation or squeeze runs, price quickly moves up and down from the zone where its making balance and such moves leave asymmetry in profile structure. i.e, leaving dents in the profile distribution inside value area.This is called poor value area..For a sustained move of the price, we need smooth distribution hence such poor value area mostly gets repaired quickly on same session or in a session or two. Below image shows two profiles with poor value ares as well as the profile with nice distribution.

Roughly 70% business activitiy of the trading day is marked as value area.Out of that value area, where most of the time price traded in the day is known as point of control of the day. Check below image. Acts as support/resistance in a strong market and acts as magnet to pull price in rotational market.

Term to refer extension of price from well known ref zones such as previous day high,Initial balance high etc

Market prefers smooth way of price auction.But some times due to pressure with short term traders or due to events/news, price make a run to adjust or load inventory which leaves poor value area,anomalies in profile structure. This is due to emotional liquidation,short squeeze, emotional chase with price etc. Once that short term business is done, market mostly comes back to probe the zones where it had left poor structure.Such probe back auction process is called repair. In short, lack of symmetry in a profile structure usually gets repaired back with price probing back into such profile.

Market participants enter the markets to fade the existing trend is called responsive auction. This happens when, a) they perceive price is valued expensive or cheaper b) when they see weak hands are meeting exhaustion with no further demand or supply. Usually happens around/above well known visual ref zones. If responsive auction is buying then its called responsive buying and players are called responsive buyers. If responsive auction is selling then its called responsive selling and players are called responsive sellers Explained in the image.

Its non overlap of time periods and single TPO period printed alone and remains untested all day. If such single prints happens at extreme of the profile, it is called as tail.If such single prints are printed at mid of profile then it is called as extension singles. Sign of strong responsive/initiative auction.

Sellers exiting their positions.

Mostly retail traders who trade based on visual ref zones such as PDH,PDL,Weekly high/low,monthly high/low etc.They look for compulsive trades around those such visual ref zones.They mostly trade for very short term moves and could not move market beyond certain levels.

Spike is a auction when last 30 mins or in 60mins towards closing of the day, if price gets imbalance move of quickly running away from all day balance made. If spike runs up and closes at high then its called upward spike.If runs down and closes at low then its called downward spike. Such spike auction do not reveal us, if such move is caused by real committed players or due to emotional players going for adjusting positions towards close.This we could get confirmed only by follow through auction in next session.That follow through can be monitored by spike rules as below.Lets assume previous day had upward spike, a) Next session if opens and makes balance above spike zone, then its sign of committed players in that previous day spike.We could then expect price could scale higher later in the day in next session till those committed players complete their probe upside or met with opposite force. b) If price opens and creates value in spike zone means sign of acceptance of spike.This is also bullish as balance means price is accepting previous day spike so could move higher later in the day. c) If accepting below spike low or opening lower below spike low in next session is quite weak.This suggests that late hour spike could be either emotional weak hands or selling tail and in both case, it could now push price to probe lower levels. Check below chart to understand all the three spike rules well.

Stealth auction happens when short term traders fails to get follow through all day and then towards close of the session goes for sharp liquidation or squeeze. So it could be stealth auction short covering if move happens upside or stealth auction liquidation if happens downside. Check the image below.Day started bullish with drive in AB period then C period got new low where intra shorts first making their attempt.Then E gets small rally but could not go higher above previous swing high and F gets new low below E i.e, this is second lower low of the day after C period low.More shorts are in now.Then G gets higher above F but no significatnt higher high.Now shorts are more comfortable and when I gets 3rd lower low for the day shorts are lured in further.Now, one important nuance to note here is that all this happening in tight auction range inside morning AB imbalance.After series of higher high followed by lower low but still not able to get meaningful follow through downside away from tight auction range means, tight auction is just luring intra shorts.When such I period low happened but fails to get follow through, then towards close intra players have no choice than running for cover as happened in JK period in the image below. You could notice stealth auction in two scenarios a) when daily/weekly time frame is stronger like higher value or one time frame up but intra tight auction is making contra move b) when you are seeing trening move in markets in short term with poor structure ie., disbelief moves for days.

Singles prints formed at extreme of the day range i.e edge of profile is named as tail. Single prints means no overlap of other periods and single TPO period stands alone and remains untested all day.It could happen at start or end of the day or could be printed during mid of the day too. If the single print is formed at bottom of the profile its called as buying tail.If single print is printed at top of the profile means its known as selling tail. Tail is sign of strong rejection of the price and good ref to track the auction.

High convictional day type.Opens at one end and closes at another extreme.Mostly lacks symmetry and value in profile structure as it elongates all through the day.No major pullback in price.Sign of other time traders presence and control over market.

Market profile analysis is based on time/price opportunity i.e TPO which is represented on chart with time on horizontal axis and price on vertical axis.Each letter on TPO chart represents opportunity created by market at certain time at certain price. In below chart A represents first 30mins of the day, B represents next 30mins of the day and so on..and based on price movement those letters are printed vertically across price lines.This is called TPO chart.

Basic framework of market profile study is TPO charts.i.e, time price opportunities.Price is plotted on vertical axis on the chart and time on horizontal axis.Each 30mins period of the trading day is marked by a letter.For example, period of 9.15am to 9.45am is marked with letter 'A', 9.46am to 10.15am as 'B' and so on. This gives us gracphical represention of price auction.This unique way of presentation from TPO charts gives structure which reveals more information about auction than simple conventional charts.In this strucutural TPO chart, one standard deviation of price distribution of the day i.e, roughly 70% of the time where price traded all day is known as value area. Check below image of TPO chart marked with value area.

Higher extreme of value area is known as value area high.It acts as support and initiative zone during trending market.And, acts as responsive zone in rotational market.

Lower extreme of value area is known as value area high.It acts as resistance and initiative zone during trending market.And,acts as responsive zone in rotational market.

When fresh low is printed exactly around any of previous period low or around major visual ref zones such as previous day low or initial balance low or previous day high etc then its called as weak low. Context is such kind of lows with precision around major visual ref zones mostly not done by other time frame traders who are not so keen with visual refs.They are being printed mostly by short term traders.So such lows are considered to be probed again hence marked as weak low.

When fresh high is printed exactly around any of previous period high or around major visual ref zones such as previous day high or initial balance high or previous day low etc then its called as weak high. Context is such kind of highs with precision around major visual ref zones mostly not done by other time frame traders who are not so keen with visual refs.They are being printed mostly by short term traders.So such highs are considered to be probed again hence marked as weak high.

When price fails to sustain beyond previous session value area extreme and getting accepted in the value area means probabilty is higher (roughly 80%) to travel through entire value area of the previous session.This is called 80% rule. Explained in chart below. Price tries to extend below value area low of previous day but fails to do so and starts accepting in previous day value area and finally thorugh G-H-I periods it travels from value area low to value area high of previous day.

When price agrees to a value for most of the trading session with nice balance it gets wide prominent poc. Wider the POC, higher the conviction that value is being agreed. After having such wider POC, if price moves way away from balance without POC migrating alongwith price then price forms 45 degree line towards POC.In such case, following is the rule to monitor auction further. Value was agreed for most part of the session.If price movement of way away from POC was overreaction,then price could be pulled back to POC very quickly before close of the session or early in next session. or If price do not return to POC by close or early in next session means, it could go for balance away to create new value for entire next session to bring the value to the zone where price migrated swiftly. If this happens then odds are higher for further extension in the same direction. So in simple words, when such 45 degree line happens only two things can happen.Price should move back quickly to POC i.e value or value should come down to price. Check below image.Price moved down in KLM periods from a nice balance but POC stayed in balance and did not migrate with price till close and price closed lower..So, as per above rule, Next session price could swiftly move back to wide POC at 11810 or If price stays lower and creates lower balance for most of next session, then odds are higher price could move down further in next session.