Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

How to Prepare for Morning Trade Using Market Profile

3 min read

Successful trading is not just about having the right strategy; it’s also about preparation, especially when it comes to the volatile opening hours of the market. One of the most effective tools for preparing for the day ahead is the market profile. This powerful tool can help traders understand market dynamics and make informed decisions. Here’s how to prepare for morning trade using market profile.

1. Understand the Market Structure

Start by examining the market’s structure using the market profile. Look at the previous day’s profile to identify value areas (where 70% of the previous day’s trades occurred), points of control , and micro references where very short term traders take control of the markets. This analysis gives you a snapshot of where buyers and sellers agreed on price and where they didn’t, which can be critical for understanding potential market movements.

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2. Top Down Analysis

Before diving into the specifics of the day’s trading session, begin with a broad analysis of the market. This involves looking at higher time frames to grasp the overall market trend and sentiment. Top Down Analysis involves starting from a monthly, weekly, to daily bar analysis, to grasp the bigger picture before moving to more specific details.

  • Monthly Bars Analysis: Starting the analysis with monthly bars provides a long-term view of market trends. It helps identify major support and resistance levels, long-term trends, and overall market sentiment over years. This broad perspective is crucial for setting the context within which more detailed analysis takes place.
  • Weekly Bars Analysis: After establishing a long-term view with monthly bars, the analysis moves to weekly bars to understand medium-term trends. Weekly charts can highlight more recent market behavior, intermediate support and resistance levels, and the sustainability of the trends observed in the monthly charts. They serve as a bridge between long-term trends and current market dynamics.
  • Daily Bars Analysis: Finally, the daily bars offer a short-term view of the market’s movements. This level of analysis is critical for identifying immediate trading opportunities, understanding daily volatility, and spotting short-term trends that could be exploited for profits. Daily analysis also helps in fine-tuning entry and exit points based on recent market behavior.

3. Analyze Yesterdays Activity

Previous day’s market activity can significantly influence the opening market dynamics. Review the profile for the previous day session to see if the market is trending or balancing. Are there any anomalies or patterns such as a P or b shape profile, trend or double distribution days? This insight can help you anticipate the market’s initial direction at the open.

4. Identify Key Levels from Previous Sessions

Market profile allows traders to pinpoint significant levels from past sessions that could act as support or resistance in the current session. These include previous day’s high and low, single print zones, failed auction, poor high, poor low , excess , prominent point of control, weaker visual references and short term references. These levels are often watched by many traders, making them potential pivot points for the day’s trading.

5. Prepare for the Initial Auction Direction

Initial Auction talks about which direction the market moved during the start of the trading day and helps traders to estimate the developing POC zones for the day with a greater probability and which in turn helps solve the market confidence indirectly. Initial Auction direction help traders access the market confidence during the start of the day.

6. Apply the Market Profile Strategies

With the market structure and key levels identified, you can now apply specific market profile strategies. These might include trading the breakout trading if the market shows high confidence, price rejection setups , breakout failure setups, trading back to the point of control if price moves away from it, or identifying potential reversals at key reference levels. Each of these strategies leverages the market profile’s ability to reveal where traders are likely to find agreement or disagreement on price.

7. Monitor for Changes and Adapt

The market is dynamic, and conditions can change rapidly, especially in the morning. Use the market profile to monitor the developing structure and volume as the day progresses. Be ready to adapt your strategy based on new information. For example, if the market breaks out of the initial balance but then falls back within, it might signal a failed breakout and potential reversal.

8. Keep an Eye on Volume

Volume is an integral part of the trading and provides clues about the strength of a move. One can use orderflow analytics tools to access the flow of volume. high volume flow mostly brings high volatile price action and low volume flow generally brings more sideways and compressed price rotations.

Preparing for morning trade using market profile is about much more than just drawing lines on a chart. It’s a comprehensive approach that involves understanding market dynamics, identifying key levels, and applying strategies with a deep awareness of how volume and price are interacting. By incorporating these steps into your morning routine, you can approach the market with confidence, armed with insights that can help navigate the complexities of the opening hours. Remember, preparation is key, and the market profile is your guide to unlocking the morning’s trading opportunities.

Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

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