Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

Market Profile Tutorial on How to access the odds in Short term trend reversal?

2 min read

Everyone likes to catch trend earlier. How to recognize and monitor the changing trend much ahead of your competition? When the price is testing a psychological reference most of the traders are in active mode. This tutorial explores how one can access the odds using the market profile with a greater conviction where short-term trend reversal happens close to the psychological reference.

There are many cases if you watch very carefully price does a lot of whipsaw around psychological reference before making a trending move. Psychological reference is nothing but round numbers where most of the short-term traders are active. For example levels like 10000, 11500, 25000, 1700, 100, 150, 25 they are round numbers or multiples of 25, 50, 100, 500 or 10000. Multiples of 100 or 1000 are often considered as a major psychological reference. And the psychological reference mostly depends on where the price is trading currently and more traders have a habit of placing their stops around psychological reference.

Let take a very recent example in ES-Mini Futures (US Markets). Where recently price tested 2800 (psychological round number reference). It whipsawed a couple of times before making a trend reversal very close to psychological reference.

European equities and overnight ES-Mini futures markets were in the red on Thursday (2 August 2018) as trade war fears ratcheted higher after the United States said it was looking at more than doubling threatened tariffs on a range of Chinese imports.

More broadly, European markets followed in the footsteps of Asian trading floors, which sank after the US administration confirmed it was considering hiking levies to 25% from the announced 10% on $200 billion of Chinese goods.Euroactiv

How one can capture those trending odds?

1)On Thursday morning trading sentiment is extreme as price opens gap down because of the new sentiment

2)My assessment of sellers confidence is high at the open as the price opened gap down. Also, price opened gap down below 2800 psychological mark in ES Futures. When the price takes 3 day or 4 day low (or even multi-day) that lower references serve as a monitor for further high confidence selling. Now monitoring POC plays a major role in accessing the developing market confidence.

i)Later part of the day if DPOC is building lower below 3 day low that indicates further high confidence selling.
ii)if price flips back into the 3-day range and DPOC starts building above 3 day low then sellers showed up are not serious enough.

3)When the news sentiment goes to extreme followed by a ABC flip which increases the odds of an early trend reversal.

On 2nd Aug despite negative news sentiment ABC flip happened with 3 day breakout failure at the earlier part of the day. That once again increases the odds of a possible ORR setup and possibly increased the odds of DPOC building above 3 day low. i.e early morning sellers are not serious enough.

4)At the C period (i.e third half hour period) price also backs above 2800 levels which adds to the confirmation that sellers are not serious enough.

5)At this point of time, my thoughts would be either a balanced or a higher odds of reversal if the previous short-term resistance Double Distribution Balance 2817 and Multi Distribution balance are likely to take out by EOD. That completely turns the odds of market profile trading sentiment to positionally positive.

5)Could see Higher reversal odds if the ABC flip + POC building above 3 day high and the ORR setup adds up to short-term reversal.

Based on all the above combinational factors ( 3day breakout failure + ORR + POC building above 3 day low + Extreme news sentiment + Price stays above 2800 psychological reference) one should be able to monitor for an early trend reversal rather than getting trapped in the news based emotional gap down and also one can further monitor for continuation of the trending move as well which is mostly based on further development of the profile structure.

Not every trend reversal happens with this sort of setups. Everytime trend reversal setups are likely to be different but if you follow the right framework in accessing the reversal odds then one can stay ahead of the competition.

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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