8/10/2017 How To Read Market Profile Charts - Part I - Get That Trading Edge

How To Read Market Pro le Charts – Part I

by Dean | Jul 26, 2017 | 0 comments

Back to: New Perspective On Traditional Technical Analysis

This is a post which includes all the acronyms I use in my analysis. This can also be
considered as a glossary of sorts where di erent market pro le concepts are
explained in brief. Just in case you have any more terms that you have doubts
about let me know I will just append the list.

Market Cycle
It is the cycle in which the markets move up and down through various stages such
as Accumulation – Mark Up – Distribution – Mark Down and sometimes the
intervening stages of Re-accumulation and Re-distribution.

Auction market Theory [AMT]

Auction Market Theory proposes that all nancial markets work like an auction.
That the price will move higher in search of sellers and price will move down in
search of buyers. Once the price has move low enough to uncover buying strong
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enough to stop the down auction, a new auction up will begin. Market Pro le
Charts can be used e ectively along with AMT principles to trade low risk
opportunities in nancial markets.

Market Pro le [MP]

Market Pro le is a way of organizing data. It organizes data in such a way that it
reveals various AMT principles in real time. In a MP chart the regular bars and
candlesticks are replaced by letters (one letter for each 30 min bar is the most
common setting). These letters are then collapsed on to the price axis to give it a
distinct shape, which sometimes resembles a bell curve.

Day Types
Normal Day [ND]
When price stays within the initial balance the whole day the day type is
called as a Normal Day.

Normal Variation Day [NVD]

When price moved outside of initial balance in subsequent periods, but does
not create a range greater than twice the initial balance the day is called a

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Normal Variation Day.

Trend Day [TD]

When prices consistently move in one direction and create an elongated
pro le then it is called a trend day.

Double Distribution Trend Day [DDT]

When price forms a narrow balance to begin with and then BO/BD from that
balance and then form a second balance in the same day, the day type is
called a double distribution trend day.
Neutral Center Day [NEC]
When price extends range beyond the IB in both directions and closes within
the value area, it is called a Neutral Center Day.

Neutral Extreme Day [NEX] 

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When price extends the range in one direction and then moves in opposite
direction and extending the range at the other end, as well as closing on the
extreme, is called a Neutral Extreme day.

Open Types
Open Inside Range [OIR]
When prices open inside yesterday’s range, we call it Open Inside Range.
The range development potential is limited.
Open Outside Range [OOR]
When prices open outside yesterday’s range, we call it Open Outside Range.
In this scenario the range development tends to be wide, and dynamic moves
can be expected.

Opening Types
Open Drive [OD]
Market opens and drives con dently in one direction.
Price seldom returns to the opening level.
Open Test Drive [OTD]
Market opens and test beyond a known reference to check for any un nished
business, if not found we resume the drive.
Second most con dent opening.
   Open Rejection Reverse [ORR]
Market opens and moves in one direction till it loses momentum and
interest.
Spotting this opposite party enters and moves the prices con dently in the
direction opposite to open.
But this early con dence is often short lived and range development is often
not very wide.

Open Auction Inside Range [OAIR]

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Market opens inside previous day’s range and auctions in a narrow range.
Weakest open.

Open Auction Outside Range [OAOR]

Market opens outside previous day’s range and auctions in a narrow range.
Even though the initial range is limited there is always a chance of a dynamic
move later in the day.

Structural details
Initial Balance [IB]
The range of the rst 2 bars or rst 2, 30 min periods form the initial balance.
Tails
When price probes a reference and get rejected in the same time period we
get a tail.
Tails show end of one auction and start of another.
Sometimes tails are also classi ed as excess.

Excess
When a tail occurs outside of a recently accepted area of acceptance it is
called an excess.
Poor High [PH] / Poor Low [PL]
When price trades at one of the extremes in more than 1 time period it is
called a PH/PL.
It indicates exhaustion of the current auction, and may result is adjustment
of the inventory.
Inventory Adjustment Break / Rally
When the market becomes too short (PL) or too long (PH) then it moves in
opposite direction to bring the inventory back in balance.
This also happens when auction forms a ‘P’ or a ‘b’ shape.

Spikes
When price moves away from established value especially near the close the
development is called a spike.
Spikes can be because of old business or new business.
In later case we get continuation and former case we get retracement.

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Old Business
When a dynamic move up/down subsequently takes a ‘P’ or ‘b’ shape
respectively, we call if old business.
‘P’ shape denotes short covering.
‘b’ shape denotes long liquidation.

New Business
More often than not ‘P’ shape and ‘b’ shape denotes old business.
To extend the range above ‘P’ or below ‘b’ we need new business, that is new
traders coming in and extending the range further.
This is often seen on a trend day.
New business is not necessarily smart money.

Prominent Point Of Control [PPOC]

When at a price level most of the time periods trade for the day, we get a
wide POC.
Such wide POCs are called as Prominent POC and act as a magnate to prices.

Volume Point Of Control [VPOC]

The widest point of a volume pro le shows the Volume POC.
It also acts as a magnate to prices.

Value Area [VA]

The 70% of days trading clustered around the POC is called the value area.
It denotes where majority of days trading took place.

VAH-POC-VAL
VAH – Value Area High – Upper limit of the value area.
POC – Point of Control – The price level about which Value Area is calculated.
VAL – Value Ares Low – Lower limit of the value area.

Anomaly
Sometimes the pro le is not smooth and has ragged edges to it.
These ragged edges are called anomalies.
Anomalies denote forcing action.
Forcing Action

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It means that every time the opposing activity increases the traders with the
original trend over power them.
This leads to anomalies and multiple distributions in a pro le.
Forcing action is liable to retracement.

One Time Framing [OTFing]

When each subsequent bar makes a higher low in a trading day we say that
market is one time framing higher and vice versa.
It is an indication of strong presence of OTF buyers or sellers.
Intraday Poor High [IPH] / Intraday Poor Low [IPL]
On an intraday pullback rally if markets form matching highs, even if it is not
at the extreme of the day. It is called an IPH and suggests exhaustion on part
of the buyers.
The situation occurs in reverse for an IPL.
Failed Auction [FA]
Whenever auction probes above or below an important reference like YH/YH,
PPOC, HVN, Balance High/Low, etc and does not nd any new business in the
direction of test, returns back below the important reference, it is called a
failed auction.
A failed auction suggests lack of interest in a direction in which the test
happens.

Time Frames
Scalper
Trades intraday. Tries to capitalize on very short term price ine ciencies.
Tool of choice Order Flow Charts, VSA Charts.
Day Trader / Very Short Time Frame [VST]
Trades intraday. Does not carry positions overnight. Tries to capitalize on the
one or two good moves that happen in a day.
Tool of choice Market Pro le Charts, Order Flow Charts, VSA Charts, Price
Action.
Swing Trader / Short Time Frame [ST]
Trades over a few days. Carries home her positions. Trades from swing point
to swing point.
Tool of choice Market Pro le Charts, VSA Charts, Price Action.
Positional Trader / Intermediate Term Trader [IT]

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Trades the FnO series and some times rolls over his positions into next
series. Tries to capitalize of big swings.
Tool of choice Market Pro le Charts, VSA Charts, Price Action.
Investor / Long Term [LT]
Buys and holds.
Tolls of choice is TTA and Fundamental Analysis.

Mark Complete

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Traditional Technical Analysis How To Read Market Pro le
Charts Part II

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Index
 Introduction

 New Perspective On Traditional Technical Analysis Problems And Solutions.

 How To Read Market Pro le Charts

 How To Read Market Pro le Charts – Part I
 How To Read Market Pro le Charts Part II
 How To Read Order Flow Charts

 Integration – Combining Traditional Technical Analysis, Market Pro le And Order

Flow For Better Results

 Conclusion

Open All · Close All

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