The Market ProfileA way of reading the market that recognizes either time spent or volume traded at a particular price level. A market profile can be either made up of “TPO’s” (time price opportunities), or volume. TPO’s measure how much time was spent at a particular price, while volume-based market profiles measure how much volume traded at a particular price. Generally, market profile is used in the trading of futures, especially the /ES. ShadowTrader utilizes volume based profiles. value areas and ShadowTrader Pivots for /ESM21 and /NQM21 Futures are posted free every morning in the ShadowTrader Swing Trader newsletter.
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Pre market indications
| Opening In/Out Balance | in balance |
|---|---|
| Overnight InventoryA way of measuring overnight activity in the futures market by just noting how much of the overnight activity happens to fall above the prior day's settlement value (4:15pm EST close) and how much falls below. If more activity is above the settlement, then overnight inventory is said to be net long. If more is below, then it is said to be net short. If all of the overnight activity is above the settlement, then it is said to be 100% net long. If all of the activity is below the settlement then it is said to be 100% net short. The overnight inventory situation matters most and has the most impact on early trade when it is skewed 100% in either direction because when the imbalance is very large like that then the odds of an early correction increase greatly. This is due to the fact that most... | Net shortThe concept of being more short than long in an options spread by creating options spreads where you are selling more structures than you are buying or selling wider structures than the ones you are buying. Example would be a broken wing butterfly. This spread is made up of two structures, one long vertical and one short vertical. In the BWB, the short vertical is wider than the long vertical. When you are long this spread, you are said to be in an options position that is "net short" |
| Current Price/Overnight Range | In lower third |
| Shock and AweA term Peter uses to describe what overnight futures traders may be feeling when faced with an open that is wildly divergent from what they expected. Large gaps in either direction that are opening well outside of range are examples of this. The approach is that when the market opens in such a manner, there is often opportunity to trade earlier rather than later because of the large contingent of traders who will be forced to reverse their positions quickly. | no |
| Potential for Early Trade | no |
| Short Term Bias | both /ES and /NQ now below 20maThe twenty period moving average, often discussed in the context of a certain timeframe such as 15 minute chart or daily chart. All moving averages discussed in ShadowTrader are SIMPLE and not EXPONENTIAL |
Key Levels for Today
| 4178.00 | Top of Gap |
|---|---|
| 4156.25 | RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. High / Bottom of Gap |
| 4130.00 | HalfbackA term for the halfway point between the high and low of any session, could be a day session or an overnight session. On Peter's market profile charts it is always a dark yellow horizontal line at that level. / VALValue Area Low |
| 4103.75 | RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. Low |
| 4095.50 | ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. |
Ongoing Narrative / Commentary
Gapping back down into yesterday’s large range. While yesterday’s rally and relatively strong close seemed bullish, an objective look at M.G.I.Market Generated Information. may show otherwise. Firstly, yesterday’s large gap was not filled. It was filled partially but still left a very large void above the RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. High. Value was clearly lower in a breakaway fashion. Last night’s overnight activity stopped right at VAHValue Area High, indicating that sellers are still in control. Recent CPI data release also took prices below the RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. Low for a short period. Carry that forward as price exploration.
As the ONHOvernight High. A term mostly used in describing the futures market which has an overnight session and trades almost around the clock. To be precise, in the /ES this is the high made between 4:30pm EST and 9:30am EST the next day. stalled at VAHValue Area High, I will trade from the framework that sellers are dominant and rallies should be sold unless we find acceptanceWhen the market profile begins to build out or develop in a certain area, it is said that the market is accepting those prices. This can be measured either in time spent or amount of volume that is transacted. It is generally understood that ShadowTrader defines acceptance as more of a time dynamic than a volume one. A good rule of thumb is to look for at least two TPO periods to print in the accepted area. The acceptance confirms that a significant amount of market participants are transacting at those levels. Acceptance is the opposite of rejection. above that level. Carry forward yesterday’s RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. Low as it was at a very technical level that is visual and mechanical for all traders. That could make this low weak should it be revisited.
Scenarios
- Early indications offer little in the way of directional clues at the open. The better trades will probably develop later rather than earlier in the session.
- As discussed above, I will assume a more bearish stance as long as prices are below VAHValue Area High.
- Carry forward that the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. breached the RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. Low and thus that prior support level from April. Carry forward that for now those lower prices were rejected, however overnight trade has less import than RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. trade. Retesting the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. would be a bearish signal and potentially put the daily 50 SMA into play on the /ES in the 4040 area.
James Dalton - Markets in Profile
For those who want to go deeper into the auction process, the follow up to Mind Over Markets by James Dalton
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