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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|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||/ES trendline break / short term trend change|
|4202.50||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.|
|4107.50||Top of Single PrintsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points.|
|4079.50||RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. Low|
|4062.00||VPOCVirgin Point of Control. This is a point of control level that has not yet been tested (traded through) during an RTH session. If the POC gets tested during an overnight session, it does not count and remains “virgin” until it happens during a day session. 05.26|
Ongoing Narrative / Commentary
On most three day weekends futures trade a shortened RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. session that ends at 1pm ET. This weekend was no different as you can see from the small distribution in 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. pic above. We ignore these sessions and consider them a part of the overnight activity. I’m also not calling spike rulesA framework for analyzing a spike on the next trading day after it is formed.
Because the spike forms late in the day, it is impossible to gauge whether or not the higher or lower prices that have run quickly away from value will be deemed fair later. Thus we employ the spike rules in the next session.
Everything below is assuming a spike at the TOP of a daily range (reverse for a spike at the BOTTOM of a range)
-If prices open above the spike, that is considered bullish and tells us that prices didn’t auction high enough in the spike to attract sellers and cut off buying activity. Monitor to see if there is acceptance above the spike.
-Prices opening within the spike confirm the higher prices of the spike. This tells us that the prices are fair enough for two sided… on Friday’s late day advance as it started in M period rather than N. Those of you using study in TOS that automatically calculates the pivot levels and places them on the chart should note that your levels will be incorrect today because the software is taking the shortened session into account and counts it as a regular day.
We now have four VPOC’s stacked below us from recent trade. That may (or may not) be unsustainable. Carry it forward in your narrative and look for some of these areas to get tested (read: targets!) on any weakness over the next few sessions.
Today is an important day to not get overly caught up in what you think should happen. The markets are obviously overbought in the short term. But are you going to try and force a short today or will you attempt a short only when you have signals and context lining up that support that argument?
I’ll leave you with an hourly of the /ES showing where the uptrend line is coming in. It would make sense that we would at least see prices come into this area in today’s session. But markets don’t need to make sense in order to accomplish their objective.
- 04.21 4390.00
- 05.06 4121.00
- 05.26 4062.00
- 05.25 3948.00
- 05.24 3885.50
- 05.20 3830.50
- Potential is there for some weakness today given how far we’ve come in a very straight line and the VPOC’s stacking up below us. Context is king. Let the setup come to you rather than forcing it because you think something HAS to happen. A weak market will more than likely either have no opening drive higher or one that will be retraced back to open quickly.
- Finding acceptanceWhen the market profile begins to build out or develop in a certain area, it is said that the market is accepting those prices. This can be measured either in time spent or amount of volume that is transacted. It is generally understood that ShadowTrader defines acceptance as more of a time dynamic than a volume one. A good rule of thumb is to look for at least two TPO periods to print in the accepted area. The acceptance confirms that a significant amount of market participants are transacting at those levels. Acceptance is the opposite of rejection. More and holding it in the upper part of Friday’s VA would be a bullish sign. Any lack of testing the signposts noted above should be construed as bullish. Remember to think in terms of what should happen and then let price action either confirm or deny it.
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