Market Profile Trading Setup

[Soultrader]

It's important to understand the concept behind value area. Whenever price is trading within it, we have a balanced market. However, once price breaks out of value there is market imbalance. Further imbalance is created when the markets extend beyond value and the previous days range.

One trading setup in playing these market balance vs imbalance is to use the VAL and VAH as a pivot. In this example, notice the morning breakdown of the value low pivot. I will look to short the retacement back to the VAL.

Exit target points are: half position at +10, quarter at previous days low, and a quarter by using smart stops.




The chart below is the same chart but zoomed out to include the previous day's action. Notice in the imbalance created by the extension of the previous days range. Once it broke the lows, it acted as a key resistance point.

[TinGull]

I'm pretty new to market profile and am darn excited to have found this forum. Here's a q....I trade ER2. This morning around 10:20ish it broke out of the previous days' VAH. It retraced to the VAH and then bounced back up forming a double top. Is this a normal sort of thing? I see in a chart you posted up top that you shorted a retracement to the VAL...could you go long a retracement to VAH after breakout with pretty good success?

Just a thought....

THANKS!
Chris

[Soultrader]

	Quote:	TinGull
	I'm pretty new to market profile and am darn excited to have found this forum. Here's a q....I trade ER2. This morning around 10:20ish it broke out of the previous days' VAH. It retraced to the VAH and then bounced back up forming a double top. Is this a normal sort of thing? I see in a chart you posted up top that you shorted a retracement to the VAL...could you go long a retracement to VAH after breakout with pretty good success? Just a thought.... THANKS! Chris

Good question Chris! Any breakout of value indicates a medium risk/medium reward trading opportunity. Any break of value and the previous days range offers a high riks but high reward opportunity.

A retracement to the VAH is a good opportunity only if market internals confirm it. Whats important is to understand whether there will be price acceptance or price rejection above value. If the previous days high is right above the VAH, there is possibility that sellersr are waiting in this area to push it back into value. Thus a price rejection.

However, a nice trend day like today showed strong market internals. As soon as price broke above VAH and retraced this offered a high probability trading setup. Always look at market internals. This will add further confirmation of a false breakout from a valid breakout.

Soultrader

[TinGull]

Thanks! This is what I was looking at...and yes, I'm watching internals of the cash market to go along with my futures trades.

Notice the breakout of VAH from previous day, and a retracement to it. As it reaches the retracement, you can see a divergence setting up with less and less selling (1 2 POP). When that delta is becoming more and more long and it finally pops, thats when I'd say we have a nice probability trade.

[Soultrader]

What is the next line of pivot I see? The chart shows a perfect setup from the VAH to the next line of resistance. In hindsight there is price acceptance above value. Im assuming there was higher value placement the next day?

I also dont use delta so hard to confirm with what you are actually seeing. What software is that?

[TinGull]

Correct. The level that you see in yellow is a developing value area high. Since this was taken after close today, that will be the new VAH for tomorrow's trading. Interesting how it happened to be like that though....
I use InvestorRT with Market Profile.

[Soultrader]

Okay didnt realize it was todays chart. I hardly pay attention to the ER2 although I am slowly getting lured into it.

Its scary how MP works perfectly sometimes. Which is why I can never agree with a trader telling me the markets are random.

[TinGull]

I'm quickly seeing this too. It's all too interesting a concept to pass up. And yea...the ER2 is a fun one. Twice as much profit per dollar as ES but this thing moves like a bronco!!!!!!

[Soultrader]

	Quote:	TinGull
	I'm quickly seeing this too. It's all too interesting a concept to pass up. And yea...the ER2 is a fun one. Twice as much profit per dollar as ES but this thing moves like a bronco!!!!!!

Thats what Ive been hearing lately. The swings on the ER2 is supposed to be a whole lotta fun The YM can be dead sometimes so Im thinking of picking a new contract to trade.

What else do you use besides MP to trade the ER2?

[Gordon G.]

Dear James,

you wrote: "A retracement to the VAH is a good opportunity only if market internals confirm it. Whats important is to understand whether there will be price acceptance or price rejection above value".

I'm much interested in this concept - price acceptance or rejection - and would like to understand how to properly evaluate which is the case once a breakout happens.
Any idea to try put the probabilities in our favor when anticipating a movement in this situation ?
What can be the instruments to look at ?

Bid/ask sizes (filtered to, say, 50 lots) ?
Volume ?
Volatility reduction/expansion ?

Thanks.

Bye