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 (  O#$%#%&O

i The 2 Big Questions

i 1) Which way is the Market trying to
go?

i 2) How good a job is it doing in

trying to go there?
 -
i 1)MARKET PROFILE IS JUST A WAY OF RECORDING MARKET ACTIVITY AS IT UNFOLDS It
u
merely a graph that plots time on one axis and price on the other to
give a visual impression of market activity. This representation takes the
form of a statistical bell curve
i 2) The Time Price opportunitiesͶTPOs
i O|#O%O
i The basic building blocks of the Market Profile are called Time Price
Opportunities, or TPO's. Each half hour of the trading day is designated by
a letter. If a certain price is traded during a given half hour, the
corresponding letter, or TPO, is marked next to the price.
i 3) INITIAL BALANCE The price range resulting from market activity during
the first two time periods (the first hour) for most commodities is called
the uuu

. The initial balance represents the period of time in
which  





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Ͷa range where both the buyer and seller agree to conduct trade.
Locals trade mostly in the day timeframe and provide liquidity,
not direction, in the market by acting as middlemen between the off-
floor traders.
O 

  
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 Ë
i Ë Locals  

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i â Other time Frame participant (
  


 O)& O
i ù Range extension
i    )&%( 
 

 
%O)%#
i O O$O||SELLERS %*
+O%% D

O$%O)%#
i O O$O||BUYERS %*
+O%%OD
 %O)%#
 â
i ,-,. ,/O 0#
i O 
 ! 

  )  1|%2(  
i 
   "

  POC- Point of control (Longest Print)
i SEE SLIDE 6 THE POINT OF CONTROL WITH 11 PRINTS was picked up
because it had the HIGHEST VOLUME Total prints excluding single
prints= 78 and 70% is 55 Value area is 99-21 to 99-28
i 8) SINGLE PRINTS
i Unchallenged trade!! BUYING TAIL LOWER PART
i SELLING TAIL- UPPER PART
i 9) POINT OF CONTROL
i THE FAIREST PRICEʹ point at which most activity occurred An
upward shift in Initial POC indicates Buying Pressure; a lower shift,
Selling Pressure
i An Alter ego of WAP!!
i 10) CLOSING RANGE the last ½ hr range
,

 

 
  O (&O#O
i ( %|(&
i *







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* Thereafter, both the other timeframe buyer and
seller auction price back and forth between them, as balanced, two-
sided trade ensues1
i 




  
 

  
i #()&% 
 
 
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i (%O)
i OO(#O%#%,#O%
i u
uuu


 
 


 

i Hassle TRADE LOCATION
 È
i - %|,O%%|(&
i 
 



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u
u
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i RANGE EXTENSION BY ENTRY OF ͚ OTHER TIME FRAME͟ʹ
something not seen in NORMAL DAY
i ----NO TRENDING AND ͚ BACK AND FORTH ROTATIONAL TRADING͛
i 3) O%((&
i SINGLE TREND
i -- DOUBLE DISTRIBUTION
i SINGLE TREND; VERY STRONG CONVICTIONAL PARTICIPATION BY
OTHER TIME FRAME
i O=L O=H Trend held on. No violation of Initial one extreme. RANGE
EXTENSION, Single Prints and strong Tail ONE TIME FRAME BUYING/
SELLING
i DOUBLE DISTRIBUTION; Less conviction thou a small INITIAL RANGE
which can be overwhelmed; needs to reassure itself. TWO SETS OF
SINGLE PRINTS. ENTRY OF DOUBLE PRINTS Suspect rally!!
 ß
i â %%O%((&
i O$  #|O#3(#O%#%,#O% 


uu
 
u
 
u uu u

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i %(&   but the Initial Base/ range is Narrow and looks as
though it is going to be a TREND DAY. Later SEVERAL PRINTS CROP
UP and the market moves aimlessly
i Trade location OPPOSITE to TREND DAY
i 6) %O(&
i O$O||)&.$,O$|#O%.
"  
i MEDIUM INITIAL RANGE ʹ Distinguishing feature
i Trade strategy; opposite to trend
 (

i O$)*#O
i Market structure
i Trading Logic
i Timeʹ the Market regulator!!
i ( %%* Market Structure 
 




i - #*%O%( 
  
 
i 4 Trade location O
 
i Ë #  
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i #*%O%(D
 
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i *#
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i O| *
 

i 
 
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i *(O(#O%#%))OOO$%
##OO(
 (- "
   ! OTHER TIME FRAME CONTROL͟
i ( O
.

i -   
i 4 TPO count - 

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1
i O#1
%*%O
i "# $O&O
i )
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O
i O O %%%*|3O%+O(
(4
 (Ë %OO%(%,#O,O&
i ( %OO,)&%* AT OR ABOVE PRV. DAY V/A
i 2) INITIATIVE SELLINGʹ AT or BELOW PRV. Days V/A
i 3) Responsive BUYINGʹ BELOW PRV. Day V/A
i 4) Responsive SELLINGͶAbove Pr. Days V/A
i See slide 15 for INITIATIVE BUYING and INITIATIVE SELLING
i NEXT SLIDE for RESPONSIVE BUYING and RESPONSIVE SELLING
(â
(ù
 (  (&O||
i O %%*#
i If actual O< Opening call, there is a Hidden selling tail there!
i 4 Types of OPEN
i ( %(,
i - %OO(,
i 4 %#O%,
i Ë %#O%
i 1) OPEN DRIVE /.$1| "  
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%O,O(1|O)
i O(Go with the trend and as early market orders
i 2) Open TEST DRIVE
i Tests a known High/ low/ support/ resistance AND REVERTS The
failure establishes the day͛s extreme! Human behavior to test!
i Strategy; No Limit order placement! Jump in and BUY/SELL Run
Profits unless single prints are violated!
(
 (È
i 4 %#O%,
i ( ,$*$..O%#%OOO(
i - O*)&%( 

! 

  
 
i 4 %%O%(%*%|.%|,O%

i Ë O
 

  
i Ë Open AUCTION can be a result here!
i 
! 

 "#
 $
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i    ,1(&%* %O.%|.%%O%((&
i ) OUTSIDE PREVIOUS DAYS RANGE
i Possibility of TRENDING BREAKOUTS and BIG DAY
(È  %%*
 (ß %%(,(&,.

  
i ( O$%,1(
,.
i    
i '  
i - O(,1(
,. but within
PRV. DAYS RANGE
i Acceptance
i Rejection
i 3) Open OUTSIDE PREVIOUS DAY͛s RANGE
 -

i The simple fact of whether a new day opens within or outside of
the previous day's range helps a trader gauge two key day
timeframe elements: (1) trade risk and opportunity, and (2)
estimating, or visualizing, the day's potential range development.
The salient concept here is market *
The relationship of the
open to the previous day's value area and range gives valuable clues
to the market's state of balance and what kind of risk/opportunity
relationship to expect on a given trading day. In short, the greatest
risk and opportunity arise when a market opens outside of the
previous day's range. This indicates that the market is out of
balance. When a market opens out of balance, the potential for a
dynamic move in either direction is high. Conversely, a market that
opens and is accepted (auctions for at least one hour) within the
previous day's value area embodies lower risk, but also less
opportunity. The acceptance of price within the previous day's
value area indicates balance, and therefore reduces the potential
for a dynamic move.
 --
i ( %O$%,1(&,.
i A) Acceptance- $%O, 
'  
 
1 SIGNIFIES- Market equilibrium
i EXTREME ESTIMATION- Perceived Current extreme+ 1.10 Previous
day range
i B) REJECTION OF PRV. DAY V/A
i Rejection of Pr. Day V/A -)
    
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*(but with a little addition because of STEPS!
i -


  
i Rejection (Break-out) of Previous days range extremes
i  
 

 
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6

breaks-out beyond the
extremes of the PREVIOUS DAY RANGE, the market is
coming out of Balance and the Range is UNLIMITED
 -Ë
i 4 OPEN OUTSIDE OF RANGE!
i a)ACCEPTED %#|%*%O,(&%*
i ##O( - 
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 "  


Unlimited range
i B) No trend Double prints. Rotatory market. BUY THE LOWS
i b)REJECTION by COMING BACK INTO THE OPEN
i HUGE BACKLASH. GO WITH THE TREND
i EXPLAIN WAP DIFFERENCES- bcf and scf with an OPEN below scf
and entering scf. Huge UPSIDE
 Day Timeframe Auction Rotations
i 
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1Such unilateral control is referred to as a one-

timeframe market (a day timeframe u
market). 
 

 
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1The thin, elongated Trend
day Profile,, is a good example of a one-timeframe market1
 -ù
i O

 
   
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i Using Auction Rotations to Evaluate Other Timeframe Control
i %

 

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 -È
i Subtle changes occurring within the auctions are often the
precursor to dramatic changes that do not appear until much later
in the form of tails and range extension. As we noted earlier, if you
wait to enter a trade until after the market commits itself, you
generally will not gain the favorable trade location that is so
important to making objective, rational trading decisions. Tails and
range extension are strong indicators, but if you rely solely on them
to judge timeframe transition, you will often be too late, for they
are 



 
'
u

 -ßExtremes

i The extremes, or tails, often provide the most obvious

evidence of other timeframe control. Tails are created
when the other timeframe buyer or seller enters the
market aggressively when they feel that price is away
from value. Generally, the longer the tail, the greater the
conviction behind the move1
i 
  
 
 


no tail on the extreme

is also significant. O     
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  " 
 
   
 






 "  1In terms of practical trading

applications, consider a rising market that shows no tail
on the day's low. Such a scenario suggests that it may be
wise to take gains earlier than one might if a tail were
present, for the market is subject to a possible reversal.
 4

i Range extension
i   

 

  


 
     
  
 
 

  
 

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1It is important to
monitor this attempted direction for continuation to determine the
success of the market's attempts to go that way.  


 


 


   
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it is possible to anticipate
a change in control by listening to the participants on either team
psyching themselves up for a new attack.
 4Ë
i Although each day develops differently, there are a few general
i categories of timeframe transition that we can identify:
i 1. No transition; either one-timeframe or two-timeframe all day;
i (+
O
Trend day (one timeframe) or most Normal days (two
timeframe).
i 2. One-timeframe to two-timeframe trade.
i (+
O
price probe beyond a known reference point (such as a
previous day's high or a weekly high, etc.) does not attract new
activity, causing the market to return to two timeframe trade.
i 3. Two-timeframe to one-timeframe trade.
i (+
O
market that is in a trading range near a known reference
point that provides resistance or support, then price breaks through
and a trend situation results.
i 4. One-timeframe in one direction to one-timeframe in the opposite
direction.
 4â
i O$O%O%#%))O 
 "
    

! !

i  RUNNING PROFILE is constructed to gauge the evidence of a change in control.
The following points of discussion use Figure 4-23 to illustrate the changes in
control that developed in the Swiss franc on October 12.
i Y-E: u 
Du
One-timeframe buying control prevails
during Y through E periods. Notice the successively higher (or equal)
half-hour auction periods. Buyer control translated into buying
range extension in A, B, and D periods. The lack of significant
downward rotation shows a conspicuous absence of the other
timeframe seller.
i E: u
In E period, price slows. Buyers spent better than a full
period near the high and were unable to extend the range further.
Time,   
 
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i # 

 4È
i O 6  !
    
 9Does this
initial rotation against the one-timeframe activity reflect a loss of
buyer control, or is the buyer merely taking a "breather17
i *9


  

 7(

7-! 
O

     
     
  
 
  " 
 1Double TPO prints indicate that
the market has spent sufficient time rotating in one direction to
justify a potential timeframe transition. The "FG" double prints at
.6702Ͷdouble prints below the .6710 E period low-suggest that
buyers were not just resting, but had relinquished control. The
transition, in this case, is either to two-timeframe trade or one-
timeframe selling. It is too early to tell, structurally, which will
result. Note, however, that even though timeframe control has
apparently shifted, the seller was not aggressive enough to
generate a selling tail on the high1The "DE" double TPO print on the
day's high represents a high made by time, not aggressive opposite
activity. This indicates a general lack of conviction on the part of the
seller, and suggests that traders looking for an opportunity to sell
this market should exercise caution
 4ß
i $9 
   

 


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i When a market auctions above or below a known reference point,
one of two scenarios will develop: (1) new initiative activity will fuel
continuation beyond the reference point; or (2) the auction will fail
to follow through. After an auction failure, price is often rejected in
the opposite direction with speed and conviction. The magnitude of
this movement 
on the significance of the tested reference
point. Known reference points exist in many forms: daily high/low,
weekly high/low, monthly high/low, a break or rally point caused by
an important news announcement, bracket top/bottom, and so
forth. The greater the variety of other timeframe participants who
are present at the tested reference point, the greater the potential
magnitude of the auction failure.
 Ë

i (
To achieve its primary goal of trade facilitation, the market
auctions lower to find buyers and higher to attract sellers. Ideally,
the market finds a value range where both the other timeframe
buyer and seller perceive price to be fair so that two-sided trade can
take place. However, the market is effective, not efficient.
Consequently, in its attempt to generate trade with all participants,
the market occasionally creates excess by auctioning too far in a
given direction
i    
  
  


  



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1The single prints 
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tail,  




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i Rotation Factor
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reference for the following discussion on how to calculate the
   

i The method for assigning a value to each time period's auction
rotation is relatively simple. If the high of the current time period is
higher than the previous period's high, then the rotation is given a
+1. If the high is lower than the previous period's high, then it is
assigned a -1
Ë4
 Ë4
i  




   
 
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!come out even, then no value, or 0 is assigned. O  
process is per 
 
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i Short Covering Rallies
i 
 

  
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completed Profile.    "
    





   

  

   


  
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almost as quickly as it got

started. 


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i Long liquidation Breaks
i O "
    
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i Ledges
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However, if it does not and the ledge holds, the market may move
significantly in the opposite direction1O 
  


 


  
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