Peter’s Premarket Perspective
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What is Market Profile
Developed by J. Peter Steidlmayer in 1980 and refined by James Dalton through the groundbreaking text “Mind Over Markets”, market profile is simply a way of organizing market generated information by incorporating the “3rd element” of time in addition to price and volume. Normal, two-dimensional charts are just that, two dimensional. They only show you how high or low price has gone and how much volume traded during each bar. Market profile tells us this as well but also keeps track of how much time was spent at each specific price level, thereby giving us a much better indication of where traders deem prices to be fair versus unfair. This creates enormous opportunities for the educated trader who knows how to read market profile.
Traders Who Don’t Start Their Day With Premarket Perspective Vs Traders Who Do
- Don’t understand the difference between price and value, therefore make decisions out of fear because of fast moving prices
- End up making trading decisions solely on guesswork and feel a.k.a GAMBLING, a surefire way to lose all your money
- Are constantly confused and always asking “what is this market doing”
- Make foolish decisions by starting to trade right after the bell everyday
- Run after tiny profits while suffering large losses that wipe out many days of gains
- Stay on the top of their game by being aware of the difference between price vs value
- Are prepared to make money with daily insights and all the key levels marked off on their charts for a successful day
- Know when to go for bigger gains rather than scalp for small moves because the odds favor it
- Are skilled at reading overnight action & will recognize opportunity when everyone else is anxious
- Trade less often and with more precision and with a framework that gets them the gains they desire
Which Trader Are You?
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Peter’s Premarket Perspective – Wednesday September 11, 2019
The Market Profile value areas and ShadowTrader Pivots for /ESU19 and /NQU19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
| 2990.25 | RTH Balance Area High |
|---|---|
| 2981.25 | Prominent TPO POC from 9/6 |
| 2957.25 | New Top of Gap / Balance Area low |
Yesterday’s action gave us a good amount of M.G.I. to add to our narrative, mostly in the form of a look below and fail which took prices into the gap but still left a large portion of it unfilled. As always pay attention to what should happen and then note when the opposite happens. What should have happened is that new sellers should have been attracted once the top of the gap was pierced. It was like a party that started off pretty good and then some fool said “Let’s play charades!” and it fizzled quickly from there.
Which brings us to current action overnight which is a small true gap higher on overnight inventory that is almost perfectly balanced. Beyond that, the open is slated to be in the larger balance area, in fact right in the meat of it where the prominent POC printed from three sessions ago. This means that if you are an /ES cowboy (or cowgirl) you will probably want to trade later rather than earlier as there is no “shock and awe” to overnight inventory and the open is smack dab in the middle of the larger balance area. I honestly cannot stress that last sentence enough. I know from my own experience and thousands of emails from traders that one of the things that is most detrimental is thinking that just because you have heard that familiar 5 tone bell ringing, there must be something to do and it must be done now. Pavlov would be proud, and there will probably be responsive setups later in the morning if we remain within the larger balance area.
In the bigger picture the balance area is still intact and the balance area high and (new) top of the gap are still our reference points. Anything between is noise.
Scenarios
- Balance rules are still in play. There could be some push/pull today as the volume POC never migrated higher with price yesterday closing at the high, against the context of some shorts probably trapped from the look below and fail. Given those two nuances, I put more weight on the trapped sellers and would continue to favor longs.
- As usual, only a breach of the top of the gap which is the new balance area low would bring upon potential for change.
Recording of the market profile Q&A from yesterday…
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Learn MorePeter’s Premarket Perspective – Monday August 26, 2019
The Market Profile value areas and ShadowTrader Pivots for /ESU19 and /NQU19 Futures are posted free every morning
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| 2882.75 | Halfback |
|---|---|
| 2856.25 | Settlement |
| 2883.75 – 2900.75 | Single Prints |
| 2847.00 – 2834.00 | Spike |
| 2834.00 | RTH Low |
| 2810.25 | ONL |
| 2888.50 | ONH |
**Am traveling again and have early meeting this morning so again this report is being written earlier than normal. There could be a large difference between where I am seeing overnight prices now and 9am EST**
Very wild futures action overnight since the 6pm EST Sunday open where we were down 40 handles in a flash and are now trading higher by about 14 as of this writing at about 5:55am EST. Sensitivity to tariff/trade war news is extremely high right now and with volatility so elevated these swings are quickly becoming the norm. Remember to adjust your targets and stops accordingly regardless of your timeframe outlook.
Whenever there is a large expansion of range in a prior session, my first reference point is almost always halfback. Think about that for a moment. It’s not just an arbitrary level. It’s the exact level where those proven to be wrong or right become a majority. Think of it as a tipping point. Currently we are trading above the settlement and below halfback. So my first thought this morning is that there will probably be a little clash between those covering shorts because are above the open and those adding to them because we are below halfback. Within those last few phrases is encapsulated my entire trading philosophy. Figure out the key levels and then decide if crossing them will embolden one side or the other. Then apply context to that.
The next area that is of importance is Friday’s RTH low. If halfback is the tipping point where a majority becomes wrong or right, then RTH low or high of a trending day is where that majority becomes close to 100%. Huge piece of market generated information there….
The last two areas of importance today are the single prints in Friday’s distribution. There are two sets of them and one is a spike which puts spike rules into play. To refresh, a spike is when you have single prints into the last one or two periods of a session. While we didn’t close near the lows, note that there was a large excess made in “N” period which is the last TPO period before the shortened “o” period. Both sets of single prints should be considered today both for their short and longer term implications; the upper single prints being a more short term signal and the spike being a more longer term one. In a nutshell, extremes of single prints are often marked off as intraday support or resistance and how we trade in relation to spikes often determines slightly longer term direction as the spikes are either accepted or rejected.
As there are always limitations to every chart view (profile. candlestick, point and figure, whatever…) I leave you with a more traditional chart of the /ES that shows the overnight action and more importantly where the trendline lies that connects the Sunday night lows. This chart is self explanatory and should also figure into your analysis today.
I’ve said a lot here and I think it’s of huge value. I’ve noticed that many of you have taken a free trial for the first time over the weekend. I sincerely welcome you and I hope that my daily writings will inspire you to look at price action with a more discerning eye and lead you to greater market understanding which you can leverage to your advantage.
Scenarios
- Overnight trade is in a very large range and trading between halfback and the settlement. Given that and the current levels of volatility, I would be looking for slightly later rather than earlier trade today. That being said, gaps up against bearish prior days often fade from the open especially when overnight inventory is relatively balanced as it is today.
- The ONH is marking inside of the single prints. A breach of it on strength would put the rest of the single prints into play on up to their top.
- Any balancing relatively close to the settlement that doesn’t breach the extremes of the overnight range should be carried forward as bearish. I would also think that acceptance below today’s settlement will embolden sellers and potentially bring more of them to the party.
Have a money Monday,
Peter
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$20 - Get Yours TodayMarket Profile Analysis of S&P Futures 05.30.19
The Market Profile value areas and ShadowTrader Pivots for /ESM19 and /NQM19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Up ten in S&P futures this morning but not showing a true gap on the market profile as of yet as we are currently trading just inside of the RTH range. There’s a lot of signposts above us so let’s look at all of them so that we can be well prepared for whatever is in store today….
| 2793.00 | ONH/RTH/Bottom of Gap |
|---|---|
| 2800.50 | Top of Gap/Start of Spike |
| 2779.50 | halfback/settlement |
The ongoing narrative that you update before the bell rings is always the most important thing. It has been proven that human beings will place far too more emphasis on more recent events than on those that are further in the past. This dynamic is especially prevalent in trading and is often our downfall. To that end, I believe this is a good morning to look past yesterday’s action and focus on the days prior because there are a number of significant elements in the recent distributions.
We now have two unfilled gaps above us. These are important and should be thought of as if there were many VPOC’s above us stacking. Markets don’t like gaps and most gaps eventually fill. Carry them forward.
The poor structure of 5/28 is also to be carried forward as it culminated in a spike. As of now (according to spike rules), the lower prices of the spike have not only been accepted but never tested at all. While this is definitely bearish, I like to take the other side of things so that I’m not surprised when prices rip the other way. The other side of the argument is simply that this structure needs to be repaired and more importantly that those traders sold away from value, then followed up with 100% net short overnight inventory, and promptly left another downside gap on top of that. So if you think in those terms, you can see that the potential for a rally is there. Remember that prices rise simply because there are more buyers than sellers. There is a lot of “old business” (shorts that need to cover) above us.
If none of the nuances above come into play today, then that’s a more bearish sign and you should continue to hold on to shorts and favor the downside.
Overnight inventory is very net long (not 100%) but this has far less import when not trading on a true gap.
Scenarios
- The potential for a rally is there given my comments above. Use the signpost framework that I discussed in yesterday’s report. The MP graphic above has the gaps and spike clearly marked on it. Judge any rally by how many signposts are crossed.
- A cross up into the bottom of the lower gap puts the 2800 top of gap and key psychological level into play as a target. I would expect that any test of that significant figure would be rejected. If internals are confirming then this could setup a good counter-trend short against that number. A move up through it puts the spike into play. As always think in terms of what should happen once a level is breached.
- Remaining within yesterday’s RTH range maintains the bearish status quo and may signal day timeframe balance and responsive trade.
Have a wonderful and profitable day,
Peter
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Learn MoreMarket Profile Analysis of S&P Futures 05.24.19
The Market Profile value areas and ShadowTrader Pivots for /ESM19 and /NQM19 Futures are posted free every morning
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The “h” pattern which stands for “hell for shorts” reared it’s head again yesterday on the daily SPX chart. causing a sharp short covering rally from a poor-ish low that closed right at halfback. Let’s see how that played out in the market profile….
Decent sized gap this morning which I believe is just follow through off of oversold “h” pattern. As of right now, the gap is not true as we are trading just inside of yesterday’s RTH high which is a key level. Note that it was listed as a key level yesterday and yesterday’s RTH high was right to it.
Overnight inventory is 100% net long. Beyond that, the ONH is also quite a bit higher than current price as well. This tells me that the short covering may have start to run its course and be dying out. Regardless, the signposts are the same for early trade. The RTH high is the main focus just after the bell. Do we come back into range and start to drive lower, or reject out quickly as more shorts start to cover?
2800 in the SPX cash is still in play. It is noteworthy that yesterday’s low in that index was 2805.00. This, coupled with the pattern is what brought in the short covering. Note also that there was lack of material excess on yesterday’s low with only two ticks there.
Yesterday’s price action has left a large gap on the upside on the charts. Remember that any overnight activity does not contribute to filling this gap at all. A gap is only filled with day timeframe prices. I like how WindoTrader has added that feature that puts red or green arrows between the highs and lows to make the gaps stand out more. Kudos to Terry and Eric over there for that!
This upside gap is significantly large and should definitely be carried forward. The fact that overnight activity did not fill it fully is also a nuance to add to teh narrative. I think a stronger market should have actually been higher overnight as there is little resistance in that gap. Staying completely within yesterday’s RTH range and not marking any prices inside of that gap today would be very bearish to me. A bullish scenario would be to reject immediately at yesterday’s RTH high and move definitively towards the ONH, break it and target the full gap fill which would be to 2852.00.
This is the last trading day before a market holiday. As such, volumes may taper in the afternoon which can lead to erratic action.
Scenarios
- Double digit gap on 100% net long o/n inventory is always the potential for a fade. That being said, I don’t discount the fact that we are already well off of the ONH and that we are trading just inside of the prior day’s high which could be supportive. As the gap is not true, that also lessens its import and also the import of the inventory position.
- I’m going to focus my attention on the 2832.25 level and what price does in regard to it. Above more bullish stance, below more bearish stance. If the move is up, target at least the ONH, if the move is down, target at least the VAH.
- For what it’s worth, I don’t believe at all in the theory that before a holiday “people don’t want to go home long”. I just don’t think that markets work that way. Volume might be low and things could get choppy, but people don’t sell just because a weekend (be it long or regular) is coming.
Have a great day,
Peter
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Market Profile Analysis of S&P Futures 05.17.19
The Market Profile value areas and ShadowTrader Pivots for /ESM19 and /NQM19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Double digit gap down back into range which is not that surprising given the poor structure and internals on the way up. Let’s see where this takes us today….
At -20.25 currently the gap is a true gap and thus gap rules are in play as long as we open below the RTH low at 2859.25. Note that this is a key level in the section above.
Overnight inventory is not 100% short but enough to take notice. Your focus early should be whether or not and how much this skew gets rebalanced.
Volume has been low over the last two sessions, internals have not kept up with price and structure has been poor. The single print sections from 5/15 are still open for repair so the potential to trade through is there.
On any early rally (or one that lasts longer), the area to watch will be VAL at 2873.00. Note that this is where the single prints that formed yesterday’s “p” distribution end. Look closely at the overnight distribution and see that there are also overnight single prints starting there on the way up, with a much heavier distribution of overnight trade just below. This an obvious turning point currently. A rally to there can be sold at that level with a tight stop which would give excellent risk reward. A rally that fails somewhere inside of single prints can also be sold. The tone would change with acceptance above that level.
Pursuant to everything in the previous paragraph, how the market acts around the ONL will decide quickly if there is to be retracement into yesterday’s range or not. Aggressive and advanced traders can sell quickly on any hint of failure or going in and back out. Odds, however, generally favor some retracement and then failure if overnight sellers were to be proven right.
Downside continuation straight from the open will be the more difficult play as always. Keep in mind that the ONL at 2853.00 needs to be taken out for anything more meaningful to develop and start to push towards repairing some of the structure of 5/15. If such a move, target 2849.00 first as it is the first set of single prints in that distribution.
Scenarios
- Internals/volume/structure have not been strong on this short covering rally. The potential for lower is there. Look for some retracement into yesterday’s range up into the single prints. Any failure is a short setup. Keep in mind that single prints offer little resistance and the market could move all the way to VAL before failing. The amount of retracement back up into yesterday’s range will tell you everything you need to know about the strength or weakness of the market.
- There is almost immediate downside continuation from the open. This is a difficult trade to pull off as there will more than likely be violent zig zags as new money sellers are already “piling on” to overnight sellers. If so, target the aforementioned 2849.00 area.
- Everything that I think should happen is wrong and the opening drive is strong and doesn’t stop at VAL. In such a scenario, only look for long trades once you are confident that there is acceptance above VAL and internals, tempo, etc are confirming.
Have a great day,
Peter
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Learn MoreMarket Profile Analysis of S&P Futures 05.15.19
The Market Profile value areas and ShadowTrader Pivots for /ESM19 and /NQM19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Strong gap back down as poor highs and lows come into play on the market profile. Let’s unpack it together….
| 2834.00 | VAL – could be resistant on a rally |
|---|---|
| 2837.25 – 2833.00 | Halfbacks of RTH and O/N sessions respectively. Could also be resistant on a rally |
| 2813.50 | Volume POC, a good first target for any down move |
| 2800.00 | Known strong support of psychological level |
Decent sized gap of -20.25 currently that is just outside of yesterday’s range but just barely. By the time you receive this report gap rules might be in play or might not as prices may move back into range. There is little early indication today as to how prices could react to the opening bell as overnight inventory is very balanced. Furthermore even though we are opening out of balance, we are squarely between the extremes of the last two sessions, both of which were poor.
I would say my overall feel here is that the market is not done selling. The poor low from 5/13 was simply a response to being oversold. But the poor high from yesterday gives a bit more information, I believe in that it happened after just one session upwards. You can’t really make the argument that buyers were just exhausted yesterday. I’m going to work within the framework that rallies into yesterday’s range should be sold.
Scenarios
- As we are in the middle of the two ranges, it’s tricky. My tone is bearish from my comments above. Overnight inventory is balanced but also more spiky on the bottom, so an early rise is possible. I would look to fade that, especially if it was to move up to the VAL.
- I would change my mind about the bias only if I saw a strong opening drive higher than yesterday’s volume POC and subsequent acceptance on bullish internals.
Have a great day,
Peter
Market Profile Analysis of S&P Futures 05.14.19
The Market Profile value areas and ShadowTrader Pivots for /ESM19 and /NQM19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Continued carry forward lower with value clean to the downside on yesterday’s market profile distribution. Today we are gapping in the other direction, so let’s assess that and it’s context.
| 2831.50 | ONH – lower than yesterday’s high |
|---|---|
| 2837.75 | RTH high – where opening short covering failed |
| 2799.75 | ONL and psychological round number (2800) |
Currently a 16 handle gap higher. Not a true gap, gap rules are not in play. As of now we are opening in balance and overnight inventory is net long but not 100% so. For what it’s worth if you can start your day by identifying just those four things and nothing else, you will be miles ahead of the competition. I start every single day answering these questions: Do we have a gap and how much, are gap rules in play, are we opening within or out of balance, what is overnight inventory situation?
The late day rally and subsequent gap up are due to two factors in my opinion. The poor low that formed in the RTH session and the proximity to the psychological 2800 level. Overnight trade went just a tad lower but found no new sellers who were willing to commit below that round number. My initial thought on this is that the low is not only weak but poor since it seems driven by a psychological pivot that really has no import. The fact that the low was poor is definitely a carry forward as it stands to be repaired at some point. Beyond that, remember that the push away from poor lows or highs is always a dynamic due to shorter term (weak hands) players. Thus those moves are often retraced.
Yesterday attempted twice to get into the range of 5/10 and failed both times. Currently we are trading about 3 points below that low after marking an ONH that was inside of that range but not as high as yesterday’s RTH high. All of this is noteworthy and will factor into how I look at any rally this morning. It will have to be looked at in that context. A move above the ONH and yesterday’s RTH high on good momentum/tempo/internals may signal stronger short covering to come. A failure to get near either of those levels keeps things status quo and will embolden sellers.
Scenarios
- If the bias is up then a stronger move may develop once the ONH and RTH high are taken. If so, there could be further retracement into the range of 5/10 whose structure was poor. To where, I really don’t know. There are no obvious nuances like single prints that we could target. A really strong spate of buying would target the POC at 2865.00 which is untested as of now.
- The market has trended lower for some time now. While there could easily be another trending day lower today, the odds don’t favor it. If it was to happen, we would have to travel a good clip back down through yesterday’s VA and breach the key 2800 level. I think downside may be limited due to push-pull of shorts covering to due to poor location (poor low shows that) against new money sellers that see the gap as a gift. Anything can happen but my personal play is to fade some stocks that I typically daytrade but be looking for smaller moves lower.
Have an excellent day,
Peter
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