The Market ProfileA way of reading the market that recognizes either time spent or volume traded at a particular price level. A market profile can be either made up of “TPO’s” (time price opportunities), or volume. TPO’s measure how much time was spent at a particular price, while volume-based market profiles measure how much volume traded at a particular price. Generally, market profile is used in the trading of futures, especially the /ES. ShadowTrader utilizes volume based profiles. value areas and ShadowTrader Pivots for /ESM22 and /NQM22 Futures are posted free every morning in the ShadowTrader Swing Trader newsletter.
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Click HERE for a market profile key that will help you interpret the chart above.
|Opening In/Out Balance||in balance|
|Overnight InventoryA way of measuring overnight activity in the futures market by just noting how much of the overnight activity happens to fall above the prior day’s settlement value (4:15pm EST close) and how much falls below. If more activity is above the settlement, then overnight inventory is said to be net long. If more is below, then it is said to be net short. If all of the overnight activity is above the settlement, then it is said to be 100% net long. If all of the activity is below the settlement then it is said to be 100% net short. The overnight inventory situation matters most and has the most impact on early trade when it is skewed 100% in either direction because when the imbalance is very large like that then the odds of an early correction increase greatly. This is due to the fact that most…||balanced|
|Current Price/Overnight Range||lower third|
|Shock and AweA term Peter uses to describe what overnight futures traders may be feeling when faced with an open that is wildly divergent from what they expected. Large gaps in either direction that are opening well outside of range are examples of this. The approach is that when the market opens in such a manner, there is often opportunity to trade earlier rather than later because of the large contingent of traders who will be forced to reverse their positions quickly.||no|
|Potential for Early Trade||no|
|Short Term Bias||pullback in context of uptrend|
|4533.00||Top of SpikeA set of single prints that are created in the last 30 minute session of the day which form at the top or bottom of a range. 4.5|
|4519.75||ONHOvernight High. A term mostly used in describing the futures market which has an overnight session and trades almost around the clock. To be precise, in the /ES this is the high made between 4:30pm EST and 9:30am EST the next day.|
|4491.75||ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. (very poor) / VAHValue Area High|
|4472.00||POCPoint of Control, also known as the “fairest price to do business”. It is the price level in the /ES where the greatest amount of volume in the prior RTH session traded. ShadowTrader measures the POC using volume but the traditional way is to mark off the widest point of the day’s distribution where the most TPO’s printed going across from left to right, indicating that that was the price where the most time was spent. It’s important to pay attention to both the volume POC and the TPO POC.|
|4444.50||RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. Low / Weak LowA weak low should not be confused with a poor low. The latter speaks to a deficiency in structure and the former deals with the location of the low. A weak low is formed when a market falls and reverses right at a specific point which is often a technical or profile nuance. Some examples would be prior intraday lows, the lower extreme of a value area, the prior day’s settlement, or the current day’s open. In each case, the location is a mechanical and visual reference that is used by short term traders as an entry point. The low is deemed weak because it can be taken easily when retested due to the short term nature of the buyers who initiated their positions at that level.|
|4416.75||50 sma daily|
Ongoing Narrative / Commentary
Futures relatively flat and slightly mixed like yesterday with /NQ’s a bit weaker than their /ES brethren. Yesterday’s afternoon rally was the buyer’s version of a liquidation breakA sharp downward break in price that often seems to come out of nowhere and is usually short lived. It is caused primarily by short term traders inventory position getting overly long and initiated by those most recent longs who have the poorest trade location. as it came off of a double bottom and squeezed higher in a forced manner. The fact that buyers were not able to build on that momentum and bring in longer term players seems to confirm that.
Overnight activity made a small exploration out of range but it’s what it did at the low end of the activity that is most interesting and actionable. Outside of the occasional 45 degree lineThe 45 degree line is an interesting market profile nuance. It occurs when a 45 degree line can be drawn from the lowest point of a distribution to its widest point (TPO POC). This is a sign that sellers have painted themselves into a corner near the lows of the session and creates potential for an upward reversal in the next session. As less and less time is spent the closer you get to the low of the session, sellers are essentially initiating shorts at less and less value. 45 degree line lows should be assumed to be secure until they are breached. The pattern is generally only noted in RTH sessions but they have shown to be relatively reliable signals in overnight sessions as well. The obvious question is always whether or not the 45 degree line can be drawn in from the high of the day t…, we generally don’t bring the patterns of overnight distributions into our narrative. Last night is an exception as it printed a low that is six (!) TPOs across. That’s about as poor of a low as you can get.
Once the smoke cleared after the bell yesterday, the daily chart of the /ES shows little in the form of advance off of that 20sma which it tested twice. Unless the market gets moving back upwards again soon, it would follow logically that the 50sma should be in play.
Let’s close on a daily chart of the /ES that shows all these levels.
- 03.21 4441.75
- 03.15 4219.50
- 03.14 4163.50
- Assume that ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. to be very poor and in need of repair. That is a short that can target deeper into value and potentially to the POCPoint of Control, also known as the “fairest price to do business”. It is the price level in the /ES where the greatest amount of volume in the prior RTH session traded. ShadowTrader measures the POC using volume but the traditional way is to mark off the widest point of the day’s distribution where the most TPO’s printed going across from left to right, indicating that that was the price where the most time was spent. It’s important to pay attention to both the volume POC and the TPO POC..
- The RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. Low is weak and would represent a short point if breached. Carry that forward in your narrative as it may be in play in subsequent sessions.
- Watch context closely today for signs of short covering. The market showed us clearly yesterday that it was too short to go lower. That sort of dynamic can sometimes take longer to play out than you would think. As value was unchanged yesterday, bullish players should be looking for a build higher to confirm their bias. Unchanged value keeps things status quo.