Welcome to Market Profile Series. In the last tutorial, we saw the different types of markets (Balanced and Imbalanced). In this tutorial, we will be discussing the different types of Market Profile Days. By analyzing the shape of the profile, one can easily identify
- who is in control in the market.
- whether other timeframe players are present for the day.
- What the market is trying to do. Which direction the market is attempting to move
- Which are the key levels the market is attempting to test or re-visit
If you are new to market profile it is recommended to start here How to read a market profile charts
Non Trend day is a balanced market profile which occurs before a major economic event, news, earning result outcome to happen result in lack of participants and a typical dull boring day. Range (high-low) for the day is very compressed and the risk-rewarding nature for an intraday trader is very less. Such days are characterized by low volume where long timeframe players dominance is clearly missing and the day is purely controlled by Day timeframe traders. Only scalping the market favors an intraday trader on these non-trend days.
Non Trend Days are mostly inside day where the current day’s range is within the previous day’s high-low range and the price rejection (at high or low) happens near to the previous days high volume node. There is no range extension on either sides which shows lack of other timeframe traders and the price rotates within Initial Balance. Market shows very low volatility and the Initial Balance is very small.
Normal day is a balanced market profile but with a wider Initial Balance. It occurs generally 65% of the total profile, the most widely seen profile in any markets. Trading centers around the point of control (fair place to conduct any business). One-sided range extension is seen or at time price trades around the wider initial balance with more trading activity balancing around the point of control.
Price generally rotates near the center of the profile and the maximum participation happens at the center of the profile with higher volumes at the POC (point of control). Single prints(Buying tails and Selling tails) on both the sides indicates lack of conviction among both the other time-frame buyers and sellers. Profile shape looks like a perfect bell-curved shape.
No one in control of this market type and the risk-reward ratio is higher for a day trader at the extremes. Wider the initial range, more risk-rewarding for the day trader. However, the profile is low risk rewarding for new shorter-term traders or long term players (who holds the position for more than a day) as the market closing is very close to the center of the profile.
A Profile day with wider initial balance with no range extension is also considered a normal day.
Normal Variation Day
Normal Variation Day is typically an imbalanced profile and the day is dominated by large timeframe players (Buyers or Sellers). Long time-frame players are waiting for the market to settle down where they consider the price to be fair and then they take control who drives the market aggressively post 11.00a.m or 12.00p.m with the range extension outside the initial range. The range extension is more than 2 times the Initial Range And the Initial Balance is typically smaller than the normal day but higher than the trend day.
The above picture shows a typical normal variation up day where the range extension happens in the ‘G’ period and the length of range extension is 2x Initial Balance.
Trend day is an imbalance profile where the day is controlled by the long timeframe participants and the conviction is very strong among the long timeframe players right from the beginning of the market. Other market participants have no options other than aligning in the direction of a longer timeframe. Many Short-term traders and intraday traders have the characteristics of trading against a trend day.
A Perfect Trend Day one timeframes throughout the day continuously. Hardly such trend days breaks the one-timeframing once.
Profile shape is vertical, elongated and very few price rotation and a clear sign of one-sided trend right from the beginning. And the Value Area is typically very large on a trend day. Risk-Reward Ratio is typically higher for a day trader during Trend Days.
Double Distribution Day
Double Distribution is an imbalance profile and one form of trend day where Initial Balance is small and the first price rotation (1st Balance Region) happens at Initial Balance. Then, the larger timeframe traders take control and drive the price in one direction. In the later session, another price rotation happens at the other side of the edge(2nd Balance Region). Both the price rotation regions should be separated by single prints. Risk-Reward Ratio is typically higher for a day trader during Double Distribution Days.
Neutral Day Center
Neutral Day Center is a balanced profile where the initial range is smaller than Normal day. Both the Larger timeframe buyers and Larger timeframe sellers are Present. They don’t trade directly each other but the intraday trader will act as a mediator between both the larger time-frame buyer and seller. Range Extension happens on both the sides (i.e Initial Balance Breaks out on both the sides). First half will be dull boring with low volume however the second half will be mostly dominated with bigger volumes and price finally manages to close around the center of the profile.
Neutral Day Extreme
Neutral day extremes are quite common on event days, days where both the larger timeframe players fight. Initial balance breaks out on both the sides but price managed to close at the one side of the days extreme.
The first half of the day is dominated by traders with low volume transactions followed by larger timeframe breaking the Initial balance on both the sides with strong volume.
P Profile Shape
P Profile days are short covering days and the letter A or B forms the bottom with single prints in the Initial Range and market opens at the bottom of the profile. The price rotation happens at the top of the profile (i.e at the range extension area).
b Profile Shape
b Profile days are long exit days and the letter A or B forms the top with single prints in the Initial Range and market opens at the top of the profile. The price rotation happens at the bottom of the profile (i.e at the range extension area).
Risk Reward ratio
- lower in Non-Trend Day, Normal Day.
- neutral in normal variation day and Neutral Day
- higher in Trend Days and Double Distribution Day
Initial Balance Range
- Non Trend Day – Narrow IB
- Normal Day – Wider IB
- Normal Variation Day – less than Normal Day IB
- Trend Day – Narrow IB
- Double Distribution Day – Narrow IB
In the next tutorial we will be discussing about the how to trade 80% rule , a simple and effective strategy to trade value area