In Market Profile analysis, both long-term and intermediate-term auctions help traders identify market trends, though they represent different timeframes and scales of market activity. Understanding their differences is key to adapting trading strategies to the right market context.
Long-Term Auctions
A long-term auction refers to a price discovery process that spans months or even years. This type of auction involves significant price moves driven by long-term participants like institutional investors, hedge funds, and pension funds. These participants make decisions based on macroeconomic factors, company fundamentals, and broad market trends. Long-term auctions define the broader trend of a market and are composed of multiple smaller auctions within it, typically ranging from intermediate to short-term in nature.
A hallmark of long-term auctions is their trend-to-balance cycle. Markets generally move in one direction for extended periods before entering a balance, where buyers and sellers agree on a fair price for an extended time. When a market transitions from a long-term trend to a balance, it signals either a reversal or continuation after the next breakout.
An important aspect of long-term auctions is that they don’t end abruptly but gradually transition into balance. This balancing phase, where buyers and sellers engage in two-way auctions, allows traders to reposition themselves gradually, which is crucial for long-term portfolio management .
To identify long-term auctions in charts using Market Profile, you need to focus on a larger timeframe and observe price behavior that spans months to years. The goal is to capture the broader market trends driven by institutional investors, macroeconomic shifts, and fundamental changes. Here’s how you can identify long-term auctions and the ideal timeframe for your analysis:
Ideal Timeframe for Long-Term Auctions
- Weekly or Monthly Charts: The best way to analyze long-term auctions is by using weekly or monthly Market Profile charts. These timeframes give a broad perspective of price action and allow you to see where price discovery occurs over extended periods.
- Weekly Charts: Offer a medium-to-long view, typically showing the auction process over several months.
- Monthly Charts: Give a more comprehensive view of trends that can span a year or longer. This timeframe is ideal for long-term investors and those looking to align with large institutional movements.
Identifying Long-Term Auctions on Charts
To identify long-term auctions, follow these key steps:
A. Look for Trend-Balance Cycles
- Trending Markets: Long-term auctions will show extended periods of price movement in one direction (up or down) without significant corrections. These trends represent the price discovery process where the market seeks a new fair value.
- Balancing Areas: After a prolonged trend, markets typically enter a balance or consolidation phase. This occurs when buyers and sellers agree on a fair price, causing price to move sideways. Long-term balances are characterized by a wide range, where the market oscillates for months before breaking out into a new trend.
B. Observe Profile Distribution Structures.
- Elongated Profiles: A long-term auction in an uptrend or downtrend will show an elongated profile, indicating strong directional conviction. The lack of balance in these elongated profiles suggests that the market is aggressively moving toward discovering a new fair value.
C. Spot Market Excess
- Excess at Highs or Lows: In long-term auctions, the market eventually reaches excess, marking the end of the auction. Excess can be identified by a “tail” in the Market Profile, where the price rapidly reverses after reaching an extreme. Long-term auctions typically conclude with clear excess, signaling a potential shift or reversal.
D. Pay Attention to Major Breakouts
- Breakouts from Balance Areas: Large breakouts from balance areas (prolonged consolidations) are often the starting point of new long-term auctions. For example, if a market has been in balance for several months, a breakout can signal the beginning of a new directional long-term auction.
Intermediate-Term Auctions
An intermediate-term auction covers a shorter duration, typically ranging from weeks to a few months. These auctions are influenced by medium-term traders, who may be swing traders or investors who capitalize on shifts within the larger trends. Unlike long-term auctions, intermediate auctions often involve several smaller swings in price that create a range or “bracket” for trading.
While long-term auctions define the general market direction, intermediate-term auctions can offer swing trades within the broader trend. These swings occur between the extremes of a price bracket, where markets alternate between bullish and bearish phases. During such brackets, traders seek to enter trades at the range extremes (either long at the low or short at the high), anticipating a return to the opposite end of the range.
The distance traveled in an intermediate auction matters more than the actual time it takes. For instance, a price move that travels quickly but covers significant ground within a bracket could still qualify as an intermediate-term auction .
To identify intermediate-term auctions using Market Profile, the key is to focus on timeframes and patterns that span a few weeks to several months. Intermediate-term auctions are driven by medium-term traders and often occur within the context of larger trends or long-term auctions. Here’s how to identify intermediate-term auctions and the ideal timeframe for spotting these opportunities.
Ideal Timeframe for Intermediate-Term Auctions
- Daily or Weekly Charts:
For intermediate-term auctions, the best timeframes are daily and weekly charts. These allow you to see price action that unfolds over a few weeks to months, offering a clear view of the market’s intermediate cycles.- Daily Charts: Useful for spotting shorter intermediate-term auctions (a few weeks to a couple of months).
- Weekly Charts: Ideal for seeing larger swings that could last a few months within the broader context of a long-term trend.
Identifying Intermediate-Term Auctions on Charts
A. Look for Brackets or Ranges
- Consolidation Areas: Intermediate-term auctions often manifest as brackets, where the market moves sideways in a defined range for a few weeks or months. These are balance areas where price oscillates between a high and a low as buyers and sellers try to find an equilibrium.
- Swing Highs and Lows: In intermediate-term auctions, prices will test the upper and lower extremes of a range several times. These swing highs and lows represent the boundaries of the auction.
B. Analyze Price Acceptance and Rejection
- Price Acceptance: When the market moves within an intermediate range, pay attention to how price interacts with the value area. If the market spends significant time at certain price levels (forming a Point of Control or POC), these are areas where the market has accepted value.
- Price Rejection: When the market moves to the edge of a range (swing high or low) but quickly reverses, it indicates rejection. This means the price is outside of the fair value range and is likely to revert back toward the middle of the bracket.
C. Recognize Range Extensions
- Range Extensions: These occur when the price moves beyond the initial balance (the range formed by the first few periods of the day or week) but fails to continue. Range extensions are common in intermediate-term auctions, where buyers and sellers push prices outside the range but are unable to sustain the move. This often leads to a reversal or continuation within the established range.
D. Profile Shape
- Profile Shape: Intermediate-term auctions will often create a bell-shaped profile, indicating that most trading activity is happening around a certain price level. This reflects a balanced market, where price is moving sideways and neither buyers nor sellers dominate.
E. Spot Transitions between Auctions
- Breakouts from Brackets: Intermediate-term auctions frequently conclude with a breakout—either upward or downward—from the established bracket. These breakouts signal the start of a new auction or a continuation of a larger trend. A successful breakout will be accompanied by strong volume and price movement, confirming the new direction.
- Failed Breakouts: Watch for situations where price moves outside of the bracket but quickly returns. This indicates a failed breakout and suggests that the intermediate auction is still intact, offering an opportunity to trade within the range.
F. Use Moving Averages as Context
- Moving Averages: Intermediate-term auctions often align with key moving averages, such as the 20-day or 50-day moving average. Price bouncing off these averages can signal that the auction remains intact, while a sustained move through these levels may indicate a new auction beginning.
Key Differences between Long Term Vs Intermediate Auctions
- Duration: Long-term auctions can last for years, while intermediate-term auctions generally last from weeks to a few months.
- Participants: Long-term auctions are driven by institutional investors and those with a macro focus, while intermediate auctions are influenced by medium-term traders or swing traders.
- Market Impact: Long-term auctions shape the overall market direction, whereas intermediate auctions represent smaller, more tactical opportunities within the broader trend.
- Cycle: Long-term auctions are composed of multiple intermediate auctions and reflect the market’s broader cycle of trends and balances.
Understanding these two timeframes allows traders to adjust their strategies to the current market environment, ensuring they align with the broader context. By tracking long-term trends while exploiting intermediate-term swings, traders can capitalize on both larger trends and short-term reversals .