Theory

Market Profile and Capflow distribution theory provide the framework for the analysis used to compile the MacLean Report. That is, markets tend toward normal distribution curves with respect to price relative to time. The market can be broken into a series of distributions or structures. It's true, that not all distributions reach maturity over every time frame, leaving incomplete structures such as a 321 up or down (ie the 'P' shape or the 'b' shape). These shapes are perhaps the easiest to make sense of, as they have a directional bias as a result of minus development one side or the other. In the case of the 321, up the directional integrity is to the upside.

Each structure represents a packet of energy, not unlike quantum energy. Each quanta has a different degree of stability, measured by skew and completeness or incompleteness. This can be represented as quantifiable at different stages of the distributions development.

There are 4 basic stages of development :

A "tpo" is a time price opportunity that is created graphically by a letter representing a half hour trading range. It's when we put these tpos up against the "y" axis, price that we get the distribution's curve.

Step 1: A vertical move up or down, non-price control. Directional but unstable. Usually begins at a point of control, equilibrium, the fattest part of the curve. (1 to 8-13 tpo's)

Step 2: The price that stops the vertical move, measured by horizontal development. (8-13 tpo's)

Step 3: Horizontal development, sideways movement. Price control, non directional but stable. (13 to 28-42 tpo's)

The Hot Zone … this is the zone at 28-42 tpo's that contains the potential for a new vertical move, outside the trading bracket established by step 3. It can occur as a new step 1 in the direction of the 321 structure or as a step 4.

Step 4: This is the final stage of development, where the minus development of the 321 structure is filled and the normal distribution curve emerges. It brings equilibrium to the market and in doing so reduces directional integrity. However it does allow us to locate a control point and use this as a starting point for the next step 1 in which ever direction it may emerge.

The market appears to remain in the horizontal stage for about 85% of the time and the vertical stage for less than 15%. Therefore the opportunity I look for is the early recognition of the trading bracket and therefore parameters to instigate trades to take advantage of the impending trading range. However this is aimed at short term traders, locals and day traders.

Considering my bent toward the strategic trading and position taking in the medium to longer term, it is just a matter of moving to the next time frame, which congruent with fractal mathematics allows us to use the same theory. Therefore I like to keep the bias of the larger 321 structure all the time looking for continuation of the longer term trend once the horizontal count has indicated the potential for a new vertical move. Of course if the horizontal count becomes too large then the likelihood for a step 4 becomes greater.

Then there's intuition, a whole other discussion. But intuition needs tools, the bones to throw and this is where Capflow shines. Instead of looking for extrapolation of a trend line, we can look for development of a distribution curve, in several time frames to get a holistic view of what's going on.