Market Profile: Acceptance and Rejection

Two of the questions that we're constantly trying to answer as we are identifying where value is developing is where is price being accepted and where is price being rejected? Think about acceptance in terms of presence and volume. So when you look at an individual rotation, so an individual daily session where price is being accepted the most is within the value area. So where 70% of the volume took place from a presence standpoint and a participation standpoint, we're looking at both the TPO and the volume profile within this structure. So where price is being accepted, meaning where it's spending the most time, where buyers and sellers are in most agreement, where they are most balanced, where there is most two way trade, that is where price is being accepted. Now that's on an individual day. If we were to combine multiple profiles within a range of acceptance. So remember, if we look at a structure like this every day might not be balanced, but we could say that over the course of these four days, price was in relative agreement within a range. So when we look at this structure and let's say that currently we are closing out this day right here. So let's imagine that this following day none of this has transacted. When we look at how we are in relation to the prior structure, we could see that we're still in a generally accepted area, we're still within fair value, nothing really has changed. And from this area we wouldn't be looking for any kind of significant change to occur. We would only expect change to occur in areas where we were previously not accepted within. So previously where we did not spend much time. So where price is being accepted, it's where volume is, it's where participation is, it's where we are most present. Where price is being rejected is pretty obvious. If you're looking at a candlestick chart, it's where you have a ton of wick, where you have a large shadow or a large wick. If you, if you're looking at these individual TPOs, we immediately know a few areas where price is being rejected. So if we, for example, let's just look at the single prints. So we know that from this general area price has not been accepted below this low price has not been accepted at these previous levels. Up here price also has not been accepted. So we have some areas immediately that we know did not allow us to spend much time within. Not much volume was transacted in, there was not much two way trade whatsoever. It was very one sided and to the upside it was very one sided on part of the sellers to the downside a little bit less one sided, right? We have a smaller tail, we have more tail at the high, but it is rising. So you could say that yes, Price over time is being rejected higher, but there's very clear areas of rejection to the upside. So we know where price is being accepted. We know where normal behavior is anticipated. And now we know where price has been previously rejected. So what we were looking for, rather what we're going to be looking for is a change in behavior. So moving forward we see, okay, this level between 6,800 and above is a level where we previously were not allowed to interact with for not much time. That's the benefit of looking at a tpo. We could see that Price barely spent time in here. There was barely any volume transacted in this level. So now we have sort of a baseline to compare any future interaction with. So what we would do is combine this into a range. So we're combining this into a composite and ultimately what we would get is something that looks like this, right? Ultimately this is the area that we were confined most of our time within. We had some presence above here, but the next day that we transacted to this level, we were completely rejected again. So we have a general area within this range where Price has been accepted. And if we combine these, we'll see that even this drawing is, even this loose drawing is likely pretty accurate. So it is slightly lower. But we get the idea this is where the bulk of the activity occurred. So now we know that this is the most recent level from which Price was rejected. So we'll look at this level moving forward. Now, if we get a change in behavior through this level, that's significant because this is a significant level. Now it's the last level where Price has been rejected. So price being accepted, what that means is that we are starting to see an increase in volume, an increase in the other side of the market compared to previous points. So if we see that over here is very one sided, the next time that we're transacting into this level, you could see that there is no immediate response whatsoever. If we were to open these two up and look at the volume profile, for example, so we'll open this up, we'll see that the volume profile here is also very thin. So we're focusing on TPO market profile right now. But the volume profile shows that there's barely any presence here. So this point moving forward, things have changed. Right? This is an area where we were previously rejected and now suddenly we have two way trade. We have Buyers and sellers increasing volume in this level where previously that did not occur. So, meaning that as price is moving through a level that previously rejected us outside of balance, they're becoming more and more happy, you could say, to transact at these levels. They're willing to do business here, rather than spending just a brief amount of time here and moving back down to where it was originally within this accepted level, fair value. Because remember, over time the value area is the area where fair value, rather the area that is closest to fair value, which essentially would be the point of control over their structure. So acceptance, that's where the bulk of the activity occurs. Right? This is if we're looking at this is a perfect range for this example, because we have back to back days that are essentially inside days for value. And then up here you have the same thing. So we know that this is an accepted area, right? There's a lot that has occurred within this general area. Price is generally accepted within this level. We can see that clearly. There's been no attempt towards a high. So we don't know necessarily whether we are rejected or have rolled over. But immediately when we're looking at the TPOs, we get an idea of where price was rejected because immediately we see something like a tail range extension. This is not really two way whatsoever. This was price dropping pretty violently. But you have a tail up here, you know, you get your idea of where trade was not facilitated, where trade was not necessarily allowed. Even so over here you have your single prints. So this is what we're looking for. When we're looking for developing value, we're looking to answer these two questions. Where is price currently being accepted and where is price currently being rejected?