ASX Charting Course

Chapter 56 Market Profile Classification

In order to build an accurate picture of the state of the market it’s advantageous to organise the data from each session and classify the session into one of the few familiar structures. This helps reveal who is doing what and where they are doing it. Most importantly it should indicate what the commercial contingent are doing, buying or selling, initiating or responding, and at what levels.

Ultimately the analysis of each day type can be compiled into a long term auction chart, which will give a broader, longer term perspective of the state of the market and its likely forward action.

Nevertheless, even in the short term, within a session, we can often assume certain outcomes given certain events. For example tails are often followed buy range extensions in the same direction.

Day Types

Non- Trend Day

This formation only occurs rarely (say 5% of the time) and involves the day trader more than the other time frame trader. Day traders will do 90% of the volume on days like these. It has a narrow initial balance and doesn’t move outside that initial balance range all day.

Fig 101

The market is said to be at balance in a non-trend day. The above range is narrow and is measured relative to the average daily range. A non-trend day is often a precursor to a new vertical move.

Normal Day

This formation occurs quite frequently, in fact it is the most common formation of all the day types. It has a relatively, wide initial balance which occupies up to 80% of the days trading range. The day time frame trader is still the most prominent participant doing around 80% of the volume. Even though the market is still reasonably well balanced, there is a slight bias in the direction of the range extension, which occurs in only one direction.

Fig 102

There’s a slight imbalance in this profile to higher prices. A range extension and the buying tail are both directional signals. The strength of the signal can only be ascertained when viewed relative to yesterday’s value. It can be initiating, which is a strong signal or responsive, which is the weaker signal.

The tpo count is also biased to the buy side, as there are more tpo’s below the point of control than above.

Normal Variation Day

Similar to a normal day, except that the range extension, the move outside the initial balance, is at least twice the range of the initial balance. The further the range extension the more the other time frame trader appears to be getting involved. So in the case of a normal variation day the participation rate is more like 60% day traders and 40% other time frame traders.

This profile reflects a greater imbalance in the direction of the range extension and suggests the market is more likely to continue in the direction of the range extension. Of course whether the signals are responsive or initiating, or even whether they exist at all will provide a clearer indication of the probable continuation of the market to higher prices.

Fig 103

Trend Day

As the name implies this is a profile that is trending in one direction. It generally has a very narrow initial balance and it’s therefore easy to tip over. Trend days occur infrequently, but when they do occur, they usually involve a greater percentage of other time frame traders than day traders. Day traders tend to take losses on these days, as they keep acting against the trend. They comprise only about 40% of the day’s volume, while the commercial traders are generally responsible for 60% or more of the day’s volume.

Trend days give rise to single time frame situations, which appear as a vertical line of single tpo’s on a chart. Single prints reflect a strong move, a sudden shift in value and often occur as the result of news entering the market.

A trend day will close within 10% of the extreme for the session over 90% of the time. It will generally move directionally in an orderly fashion and that will allow it to continue. If there is a big, fast move, the market is said to be advertising for the opposite activity, responsive activity. If responsive selling activity becomes the dominant activity, the trend will probably be halted.

Fig 104

Trend days are usually followed by rest days, balance days, such as non-trend days or normal days.

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.



ASX Charting Course
Chapter 56 Market Profile Classification
In order to build an accurate picture of the state of the market it’s advantageous to organise the data from each session and classify the session into one of the few familiar structures. This helps reveal who is doing what and where they are doing it. Most importantly it should indicate what the commercial contingent are doing, buying or selling, initiating or responding, and at what levels. Ultimately the analysis of each day type can be compiled into a long term auction chart, which will give a broader, longer term perspective of the state of the market and its likely forward action. Nevertheless, even in the short term, within a session, we can often assume certain outcomes given certain events. For example tails are often followed buy range extensions in the same direction.
Day Types Non- Trend Day This formation only occurs rarely (say 5% of the time) and involves the day trader more than the other time frame trader. Day traders will do 90% of the volume on days like these. It has a narrow initial balance and doesn’t move outside that initial balance range all day.
Fig 101
The market is said to be at balance in a non-trend day. The above range is narrow and is measured relative to the average daily range. A non-trend day is often a precursor to a new vertical move. Normal Day This formation occurs quite frequently, in fact it is the most common formation of all the day types. It has a relatively, wide initial balance which occupies up to 80% of the days trading range. The day time frame trader is still the most prominent participant doing around 80% of the volume. Even though the market is still reasonably well balanced, there is a slight bias in the direction of the range extension, which occurs in only one direction.
Fig 102
There’s a slight imbalance in this profile to higher prices. A range extension and the buying tail are both directional signals. The strength of the signal can only be ascertained when viewed relative to yesterday’s value. It can be initiating, which is a strong signal or responsive, which is the weaker signal. The tpo count is also biased to the buy side, as there are more tpo’s below the point of control than above. Normal Variation Day Similar to a normal day, except that the range extension, the move outside the initial balance, is at least twice the range of the initial balance. The further the range extension the more the other time frame trader appears to be getting involved. So in the case of a normal variation day the participation rate is more like 60% day traders and 40% other time frame traders. This profile reflects a greater imbalance in the direction of the range extension and suggests the market is more likely to continue in the direction of the range extension. Of course whether the signals are responsive or initiating, or even whether they exist at all will provide a clearer indication of the probable continuation of the market to higher prices.
Fig 103
Trend Day As the name implies this is a profile that is trending in one direction. It generally has a very narrow initial balance and it’s therefore easy to tip over. Trend days occur infrequently, but when they do occur, they usually involve a greater percentage of other time frame traders than day traders. Day traders tend to take losses on these days, as they keep acting against the trend. They comprise only about 40% of the day’s volume, while the commercial traders are generally responsible for 60% or more of the day’s volume. Trend days give rise to single time frame situations, which appear as a vertical line of single tpo’s on a chart. Single prints reflect a strong move, a sudden shift in value and often occur as the result of news entering the market. A trend day will close within 10% of the extreme for the session over 90% of the time. It will generally move directionally in an orderly fashion and that will allow it to continue. If there is a big, fast move, the market is said to be advertising for the opposite activity, responsive activity. If responsive selling activity becomes the dominant activity, the trend will probably be halted.
Fig 104
Trend days are usually followed by rest days, balance days, such as non-trend days or normal days.
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.