Tails are single prints at the lower extreme or the upper extreme of a profile. A lower tail is naturally seen as a buying tail as we know the other time frame trader, or commercials, are more likely to be buyers than sellers at the low side of a days range. If this buying tail occurs below yesterday’s value, we can call it responsive buying and look for all the tell tale signs of that activity. If on the other hand it occurs above, or within, the previous session’s value area, it’s seen as initiating activity.

We also know that initiating activity is abnormal activity and can be slightly chaotic. It’s likely to promote continuation of a move. Whereas responsive activity takes time, but will ultimately stop the market for a period of time at least and more than likely change the market’s direction. A tail is the result of price rejection.

It’s therefore a good sign of support or resistance and we can actually lean against the price where the tails starts. It can effectively supplant the high or the low as a better level for support or resistance. Often very little trading is actually done in tails. The bigger the tail, that is the wider the single print range, the stronger the signal.

Range Extensions

Range extensions occur when the market moves above or below the initial balance, which is determined by the opening session, generally about the first hour of trading. The initial balance is a period of price exploration by local day traders who go looking for the big commercial orders, which presumably lie both above and below the market. Once these opening parameters have been established, the market is free to rotate within the imposed limits.

A range extension is created as soon as price is advertised higher or lower, outside the initial balance. It’s the other time frame trader, the commercial contingent, who permits the market to move outside the initial balance. They do this either by lifting or shifting their orders or having their orders filled by the opposite activity.

As with tails the direction of the move determines whether the signal is a buying or selling signal and the location relative the previous session’s value area will determine whether the signal is responsive or initiating.

If the market rallies above the initial balance, it’s a buying range extension. That’s a sign that the commercials are buying. If price breaks down below the initial balance, it’s a selling range extension. The other time frame trader, the commercials are selling.

If the buying range extension occurs above or within yesterday’s value area, then it’s an initiating buying range extension. It’s a strong buy signal. If it occurs below the previous value area it’s a responsive range extension and more like what one would expect. Responsive activity is normal activity, but with less strength than initiating activity.

If a selling range extension occurs above yesterday’s value area, it’s responsive activity. If it occurs below or within yesterday’s value area, it’s initiating activity.

A range extension often results in a move at least equal to the range of the initial balance, if not more. It’s a fairly strong breakout or breakdown type of signal, one that generates a go with type of trade. As opposed to the fade the action type of trade associated with a tail.

TPO count (Time Price Opportunity)

Probably the weakest signal, but a signal nevertheless, is the tpo count above the point of control versus the tpo count below the point of control. If there is a greater number of tpo’s above the point of control we can say that there is more selling activity than buying activity and a net selling day. Conversely if there are more tpo’s in the lower portion of the profile relative, below the point of control, then we can say that commercials are active on the buy side.

Once again we use the signal relative to yesterday’s value area to ascertain whether it’s an initiating signal or a responsive signal.

All signals within the previous day’s value area are depicted as initiating rather than responsive. If a signal is generated within the previous session’s value area, it’s seen as a result of other time frame traders who are prepared to initiate something new when the market is not really presenting them with any advantage. They have enough conviction in their view, such that they expect the market to move directionally, before it will allow them to trade in a more appropriate, advantageous location.

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Craig MacLean is a Futures Adviser Licensed under the Australian Securities Commission, Corporations Law. The writer accepts no responsibility for any losses incurred from any action or inaction derived from the advice in this report.