Wednesday, May 15, 2013

Market Profile

I always refer to the letter 'P' when longs get bad fills on the MonkeyBars(Volume Profile/TPO Profile)...Here is ShadowTrader (Peter Reznicek) mentioning the same:

The entire distribution looks like a letter P.  A profile that had more new money initiating longs in it would not look like this.  The morning spike is all short covering from those individuals who probably were getting themselves short over the last few trading days when the market was struggling to make new highs.
At the top, I’ve drawn in the 45 degree line from the highs.  This is the inverse of when there is a 45 degree line from the low to a prominent POC.  Traders got themselves “long in the hole”, ie: at bad prices and there is usually a liquidation break soon after.  Note that prices at the close were well above the ‘fairest price to do business’.
The first two downside references for today’s trade are the prominent POC at 1645 (wide POC’s have increased odds of being retested) and the beginning of the single prints which I’ve highlighted with the blue box.  We call that the “top of the spike” and it’s always a reference point on the way back down.  The only meaningful upside reference is of course yesterday’s high.   There is a chance that we break it but any such break would put us parabolically up and over the channel resistance.