Market profile and understanding of the language


Outlines daily profile

Using the daily profile shapes to determine the level of balance / imbalance of the market may be helpful because it gives you a starting point in understanding the shifts between the action. Ability to deal with the greatest benefit comes when the market is going to be a shift of the balance to imbalance. What's more, if you can identify a trading opportunity and accurately calculate the potential scale of this shift, you can also estimate and the quality of the transaction, and the required amount of time for her. Balance and imbalance - not absolute, but relative. As a trader, you are trying to accurately measure the potential to change them. If you are working inside day period, then the trading range of the first hour sets the primary balance of the day. Using this initial balance as a starting point, you can measure the rate of change within the range of the trading day. In other words, is the first hour of the trading range for wide or narrow? Will a trading range during the following hours, and if so, how much? Or the first hour of the trading range remains intact all day?

This process leads to the classification of different shapes market profile and to some extent provides a mechanical approach to reading the markets (consider a more natural approach is lower). However, measurement of changes during the day is a great start in the practice of reading shifts between balance and imbalance and to identify trade opportunities generated by these shifts.

Different market profiles imply different opportunities. When there is no obvious imbalance profile structure is classified as normal, or non-trend, day.

Normal days

In the so-called normal days the balance is established early in the session, and usually large price movements occur in the first hour of trading. This early broad movement a clearly defined top and bottom, between which the transaction will occur. The broader movement of the initial period of time, the more likely will be a normal day forecast results. Typically, when the first hour of trading is a normal day for about 85% of the daily range. Range expansion during the day are small or non-existent.

Trading strategy based on the normal structure of market profile is to sell in the top of the initial range to reach the bottom of the range.

In the figure we can see that the extremely broad periods y and z are not allowed any further expansion of the range for the 5th day.

Traders can sell for z period. In fact, the effect of a wide range of primary balance 5th day preserved in the next two trading sessions (7th and 8th), as the market continued to trade in these days within the same trading range as the 5 th day.

Non-trending days

Non-trending days have a rather narrow range of the first hour, if it ever is. Most of the day's range is formed during the first hour and then converted into a narrow but stretched horizontally profile. Although in reality these days do not provide intraday trading opportunities, they are usually very good to enter the position in anticipation of directed motion. Such directed movement initiated during non-trending days, usually resilient transactions, such as "go-all-together."