market profile concepts

This will be an ongoing post as I'll learn & observe more on MP theory.

- opening price: - if the opening price is higher or lower than the previous day close this creates a gap on a price chart. In market profile this gap represents a shift in market sentiment. Like all gaps, the greater the gaps the more significant it is. A market gapping on a economical news and on heavy volume has much more significance than a market gapping with no news and light premarket volume. The first gap has a chance of being a continuation gap while the other one has a high probability of a gap fill.

- opening price in relation to VA:

1. - if price opens above/below VA and the previous days range, this creates a complete market imbalance. This offer a high risk but high reward trading opportunity
2. - if price opens above/below VA but within the previous days range, this indicates a market imbalance but not as significant as the first one. This creates a medium risk and medium reward trading opportunity
3. - if price opens within the VA and the previous days range, this indicates a complete market balance. Unless price extends above/below VA, this creates a low risk but low reward trading opportunity

- previous days close in relation to todays open: - any late afternoon rally or decline can mean 2 things: either the longer time frame participant stepped in to buy/sell aggressively or the short term traders are liquidating their positions. To understand the difference is crucial.

For ex: - if the previous days late afternoon market action was a rally and price closed at the upper extreme of it's range; this could indicate a short covering which fueled a rally or actual longer-time frame buyers stepped in.

- the opening price action is crucial to understanding this.

1. - if price can remain above the previous days high and VAH, this means that the rally was valid and longer time frame buyers was present. The previous days high and VAH will act as support.
2. - if the market opened above the previous day high and VAH and was quickly rejected falling bellow value, this indicates short covering. Understanding price acceptance from rejection is crucial.

- previous days close: - if the previous days close remain in value, this indicates market balance. If the price remains above/below VA this represents market imbalance.

- market excess: - market excess exists when prices have extended too far above/below VA. Other time frame player will enter aggressively to return price back to value. A single print tail below/above value is a good sign of market excess. On a price chart this is where prices find S/R with a quick reversal never to test that level again.

These levels are very important because they can act as key future S/R levels and represents price rejection, no acceptance.

- POC: - the price level in which the highest volume occurred. This can act as a key S/R point. This is also commonly used as a level to place stops.

- VAH & VAL: - these are 2 important pivots. When prices are trading within VA, the VAH will act as R and VAL as S. If prices do break out of VA, the VAH will act as S and VAL as R.

- IB: - H/L of the first hour of trading. If the IB is narrow this could indicate a trend day. A wide IB can indicate a market rotation from the upper range to the lower range.