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Copyright (c) LBRGroup 1996-2006. All Rights Reserved. 1 MARKET PROFILE CONCEPTS Ways of organizing activity and structure “There is no greater indicator.

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Presentation on theme: "Copyright (c) LBRGroup 1996-2006. All Rights Reserved. 1 MARKET PROFILE CONCEPTS Ways of organizing activity and structure “There is no greater indicator."— Presentation transcript:

1 Copyright (c) LBRGroup All Rights Reserved. 1 MARKET PROFILE CONCEPTS Ways of organizing activity and structure “There is no greater indicator of what the market is doing then the market itself.”

2 Copyright (c) LBRGroup All Rights Reserved. 2 Definitions and concepts for understanding the market Initial Balance – the first hour’s range Range Extension – move outside of the first hour’s range Value Area – 70% of the day’s activity level Single Print Buying Tail – one time frame price rejection at the lower end of the range (30-minutes) Single Print Selling Tail – Also considered to be a form of “excess”. Tails cannot occur in the last time frame of the day. Point of Control – where the most amount of activity takes place.

3 Copyright (c) LBRGroup All Rights Reserved. 3 Classic Market Profile chart with Value Area

4 Copyright (c) LBRGroup All Rights Reserved. 4 Market Profile Value Areas with Expanded Profile

5 Copyright (c) LBRGroup All Rights Reserved. 5 6 Day Types – “Normal Day” Initial Wide balance in first hour. This type of day often occurs on news where the initial directional move is strong. Despite the early range is wide, support or resistance is found off the initial drive, and the rest of the day is spent testing back and forth in this range. Normal days are actually rare, despite the name. A trader must recognize the implications and adopt countertrend trading strategies for the remainder of the day.

6 Copyright (c) LBRGroup All Rights Reserved. 6 2) – “Normal Variation Day” This type of day does not have as wide a first hour’s range as a normal day. The initial balance or base is upset as the other time frame player pushes price out of the first hour’s range. The rest of the day is then spent forming a new value area outside of the early base.

7 Copyright (c) LBRGroup All Rights Reserved. 7 3), 4) - “Trend Days” – Standard and Double Distribution One direction movement fueled by high volume. The other time frame player is in control from the opening price. Each time frame makes lower lows and lower highs (or, vice versa). A double Distribution trend day lacks the strong opening drive, and instead has a narrow initial balance. Single prints then market the move out of the initial value are and the other time frame player remains firmly in control.

8 Copyright (c) LBRGroup All Rights Reserved. 8 Drive outside Narrow Initial Balance

9 Copyright (c) LBRGroup All Rights Reserved. 9 5) - “Non-trend Day” A Non-trend day has no directional conviction, no range extension, and minimal activity level. This type of day often occurs before a big news release or economic event. Market participants balance their positions in front of the event. The is no market conviction and little market participation.

10 Copyright (c) LBRGroup All Rights Reserved. 10 6) – “Neutral Day” The market tests on both sides of the initial balance. Price continues to rotate on both side of the opening price. Both the buyers and the sellers are active but no one is in control. This type of day tends to form a broad “value area” or trading range. A breakout from this range must be accompanied by an increase in volume to indicate that the other time frame player has gained control.

11 Copyright (c) LBRGroup All Rights Reserved. 11 Neutral Day – no conviction

12 Copyright (c) LBRGroup All Rights Reserved. 12 OPENINGS Open Auction: Price rotates around the opening without any clear conviction. Open Drive: Prices moves in a strong directional manner right from the opening. Open – Test – Drive: After the market opens, the prices tests in one direction and then sharply turns around and drives in the opposite direction. Open – Rejection – Reverse: The opening is outside the previous day’s value area – the move outside value is rejected and the market reverses sharply back into the previous day’s range.

13 Copyright (c) LBRGroup All Rights Reserved. 13 Open – Rejection – Drive, Gap outside value area

14 Copyright (c) LBRGroup All Rights Reserved. 14 Trend day UP after gap open down, Market alternates between trend days and consolidation days.

15 Copyright (c) LBRGroup All Rights Reserved. 15 Bonds – detail of trend day and drive off opening

16 Copyright (c) LBRGroup All Rights Reserved. 16 TIME = PRICE ACCEPTANCE The more time that price trades at a level, the more the market is accepting the price as being “fair” When there is a sharp price rejection, also called buying or selling “excess”, those price levels were not accepted by the market and can be considered future areas of support and resistance. A move outside the trading range leads to a quick return back into the trading range.

17 Copyright (c) LBRGroup All Rights Reserved. 17 Buying and selling tails

18 Copyright (c) LBRGroup All Rights Reserved. 18 Normal days and Tails – detail

19 Copyright (c) LBRGroup All Rights Reserved. 19 Close Outside Value Area The market closes “out of balance”. The odds for the price to trade outside the previous day’s range are significantly increased. (The previous day’s high or low is traded through a significant % of the time relative to the overall sample)

20 Copyright (c) LBRGroup All Rights Reserved. 20 Close outside Value

21 Copyright (c) LBRGroup All Rights Reserved. 21 Opening relative to a previous day late afternoon move. If the market has a move outside of value area in the afternoon with a weak or strong close, this can either be short covering (in case of up close) or, the higher time frame player stepping in. If the market holds above the previous day’s value area in the early AM session, then it can be assumed that the higher time frame player was stepping in, and further upside continuation should be expected. However, if the price drops below the previous day’s value area, then the late afternoon move was nothing more then short covering by day traders. Recognizing the presence of the higher time frame player is such an important concept!

22 Copyright (c) LBRGroup All Rights Reserved. 22 SP – classic trend day down, followed by unusual reversal bar

23 Copyright (c) LBRGroup All Rights Reserved. 23 Same market action shown by 30-minute candlestick charts

24 Copyright (c) LBRGroup All Rights Reserved. 24 EC – market profile 30 minute – rising value areas in trend

25 Copyright (c) LBRGroup All Rights Reserved. 25 EC – mark up (“Single Prints”)

26 Copyright (c) LBRGroup All Rights Reserved. 26 EC – 30 minute candlestick chart showing support and resistance

27 Copyright (c) LBRGroup All Rights Reserved. 27 Early rotation around the opening price following a trend move

28 Copyright (c) LBRGroup All Rights Reserved. 28 Neutral Day, Trend Day, Z day

29 Copyright (c) LBRGroup All Rights Reserved. 29 Large 15 minute bar off the opening price

30 Copyright (c) LBRGroup All Rights Reserved. 30 Previous Day’s high and low set up test points

31 Copyright (c) LBRGroup All Rights Reserved. 31 Trend days and Z days (morning consolidation)

32 Copyright (c) LBRGroup All Rights Reserved. 32 Index futures – Trend Day vs. Consolidation

33 Copyright (c) LBRGroup All Rights Reserved. 33 Bonds – Trend Day vs. Consolidation

34 Copyright (c) LBRGroup All Rights Reserved. 34 Index futures – Trend Day vs Consolidation

35 “Mind Over Markets” Jim Dalton

36 The End! Thanks for Attending.


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