Market Profile trade scenarios

Discussion in 'Technical Analysis' started by TraderD, Oct 18, 2007.

  1. TraderD


    I am new to MP. There appears to be a contradiction which I would like to talk about. I think it could bring up interesting discussion.

    Here are 2 standard MP axioms:

    1) If price opens above previous days VA, and drives down to previous days VA, one should buy at UVA and then at POC.

    2) If price opens above previous days VA, and drives down to previous days UVA/VA and then gets accepted in VA, then price is likely to drive down through the whole VA.

    Knowing odds implied by case #2, why would it make sense in scenario #1 to try to enter at POC after entry at UVA failed? I know that one can trade that way, but would not it be a lower probability entry vs entry at UVA?

    Now, suppose the price drove down as described in scenario #2. Is buying at LVA level as good of a trade as buying earlier at UVA?
  2. ?..............The market opening above yesterday's value area and then going lower towards that value area is called "responsive selling". The buying that's absorbing the selling is called "initiating buying". Initiating activity is deemed to be stronger than responsive activity. Initiating activity happens more swiftly because it's with the trend. Responsive activity happens more sluggishly because it's contra-trend. In your example, you have to make an assumption that the point-of-control and the top & bottom of the value area will be "support" the first time they are touched. Any selling up to that point will be of a responsive nature met by initiating buying. When the lower-level of the value area is breached, at the point, selling becomes of an initiating nature and buying is only of a responsive nature. Then, you're looking for big range-extension to the downside. I hope some of that helps.
  3. A lot of guys don't even know what market profile/MP is. Here is a video Alex did. Brief explanation of Market Profile:

  4. TraderD


    Thank you for your description of underlying dynamics. I have read both of Daltons books - they seem to illustrate the same concepts over and over at different angles which I found to be very helpful.

    What I get from your answer, is that when price opens above VA and drives down to UVA then POC and then LVA, you would be an equally aggressive buyer at all 3 levels. In general.
  5. Bankster


    yes, good thread indeed
  6. You'd have to be a little careful if yesterday's value area was tall & narrow. Your UVA and LVA entries would be "far" apart.
  7. bellman


    That in my opinino is an unnecessarily convoluted way of viewing MP. Granted it is challenging to graphically represent MP, but using letters to represent various time periods, and displaying which time periods the price "touched in" by listing those letters across the time period is RETARDED. Even describing it is convoluted.

    That is NOT really MP. MP by definition involves the VOLUME distribution across each specific price, and I have seen far simpler and more effective ways of representing MP.

    I am sure someone coded that piece of crap is proud of themselves, but surely they do not use it to trade profitably.

  8. TraderD


    Let me think about the reasons behind that.

    "a little careful" - so to buy is still a good idea, but less odds are in your favor

    "tall & narrow" profile - basically a trend day with a steady march in one direction. The value (support in our case) is spread out too thin and too long, which make it easier for price to move trough this area w/o stopping/bouncing.

    "entries would be "far" apart." - hm...makes it more risky to scale in?
  9. Yes.......yes......& yes.
  10. TraderD


    If someone wants to comment on scenario in initial post, feel free to do so at your leisure.

    Meanwhile, I though it would be good to discuss trading off IB (initial balance) w/ range extensions. If markets opens above VA and keeps driving up, you can rely only on long term MP (resistance above) or current price action itself to base your trades on. MP would suggest to stay w/ the trade while profile is elongated and resistance above is not met.

    So in this scenario, previous VA is of no use. Waiting for pullback would keep you waiting. So either MP trader should wait for different markets conditions or be ready to jump on this trend. So one must employ 2 strategies not to go hungry? Does that make sense?
    #10     Oct 26, 2007