Market Structure - Examples

The Market Profile is a way to 'listen" to the market and is simply a way of organizing market activity as it unfolds. It plots time on the X-axis and and price on the Y-axis to give a visual impression of market activity. Volume transacted at each price level is also captured to measure the success or failure of the advertised opportunity (Price). This representation of Price, Time and Volume takes the form of a statistical bell curve.

The purpose of this page is to show examples of market profile patterns that rarely occur and those that occur fairly frequently. My observations here deal with how to trade these patterns and derive key information from the market structure.

Example 1 - A market that goes from being too short to too Long - Dec 4-9, 2013

The profile from Dec 4 shows a POC that does not migrate lower as the auction unfolds. On Dec 5, traders try to drive price lower but cannot take out the prior day low. Dec 5 gives us an inside day, a prominent POC that once again does not migrate lower and provides that 45 degree line from the low to POC....indicating that traders are getting "short in the hole". Dec 6- the market gaps open to the upside almost 10 points - above the prior 3 day high - taking out all the shorts in the process. What contributed to this short covering rally?
- back to back poor highs on Dec 3 and Dec 4
- POC's not migrating lower between Dec 3-5
All the signs were there if you read the market structure correctly.

The profile from Dec 9, 2013 shows a market attempting to take out the all time high in the S&P. The triple TPO poor high is great example of a market that is too long. These poor highs are a sign of a market that is too long and often the "market has to break before it can rally". On Dec 10, the market gaps open lower, is able to fill the gap but cannot make it to the 13 TPO wide prominent POC. On Dec 11 the market fell almost 24 points, repairing the poor low from Dec 9 and filling the gap left on Dec 6 - more repair of structure.



 

A Balance breakout Failure - short trap!

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