Market Profile: Anomalies - Poor Extremes Part 1

Foreign.

Guys, what's going on? This is Ryan, AKA Kenner and Clark, and in this Roadmaps video, we're going to be getting into distribution anomalies. So we're going to specifically be talking about poor extremes, but there's a bunch of different types of anomalies that we're going to eventually get into, and this is going to be one of the more common ones. So, first and foremost, what is an anomaly? All right, so this is a concept that is primarily popularized through Market Profile. And these are levels or single price points that lack symmetry or balance. And this often results in an unusual shape distribution. So one of the benefits of using Market Profile is that it makes the data really easy to use. All right, so with Market Profile, it's very easy to identify whether a market is either imbalance or out of balance. So ideally, in any type of distribution, whether it's a daily, a weekly, a monthly, or yearly, what we would be looking for is an evenly distributed value area. So one of the things is an evenly distributed value area, and it's an indication of balance. Right? So we're looking for some type of image or some type of shape that indicates balance. And really what this looks like or brings to mind is the bell curve. So this is a perfect example. Right here. We have a predominantly balanced distribution through this structure. So the market opened within value, Obviously it's going to open within value and then ended up closing within value. So what you have here, if you were expanding this, is a price that rather an asset that move up to the highs, was rejected, moved to the lows, was rejected, and maintained this balance structure for the duration of this rotation. So we want to see that the distribution is balanced, or rather, this is just an indication that it is balanced. If anything, when we're looking at tpo, we're going to be able to identify whether or not it's balanced or imbalanced. We want to see that the volume and rotations are confirming each other. So throughout this distribution, we want to see that there's really no significant difference between where we spent in time versus where volume was transacted. So you'll see that in this case, I have my volume profile directly over this TPO chart. So again, this is where the volume was transacted, and if anything, as we rotate throughout the day, we want to see that the volume is confirming those moves. Now, the other two things that we want, and these are going to be more in line with what we're talking about specifically with this type of anomaly with poor extremes is good buying tail or good selling tail? So here's your good selling tail. Here's your good buying tail. And what we have is we have TPOs that are no greater than one in width. So what we're looking for is something that looks like a very thin extreme. Okay. And for a good buying tail, such as this down here, what it indicates is a very strong rejection. Okay? So a very strong rejection by what? By lower prices. So we talk about the auction process, all right? And we talk about just how in a normal auction if you drop the price of something that is just a valuable good. Off the top of my head, let's think of Rolex watches, right? If you were to considerably drop the price of a Rolex watch, what would you really want to see? We would really want to see that that was bid up very quickly. If we were going to assume that there was a lot of demand there, it would really not spend much time at those low prices. And that's what you're seeing by this good buying tail. So it's a single print extension or tail. There's a few different ways that it gets referred to. And the opposite can be said for the good selling tail. It indicates a very strong rejection of higher prices by sellers. The same thing say we're in a dual auction and prices are auctioned higher. What this indicates, since it's a dual auction and there's a chance for someone to sell, is that it was aggressively sold. At these high prices, it was aggressively sold. We didn't see buyers step in and continue bidding this up. It reached one extreme and it was very swiftly rejected. Okay? So tails are considered a form of excess. And the larger the tail, the more aggressive the response. So you can imagine that a very long tail with a single print means that we traveled a far distance, but we didn't really spend any time there. And when you're looking at this, alright, if we were to undo this and sort of roll it out, what this would look like and what this would look like would be one of those candles that quickly moves into a low or quickly moves into a high and is very, very swiftly rejected. All right? I don't know how many times I'm going to say swiftly rejected. But you understand what the candle looks like. It's one of those candles that immediately just gets walloped, right? And it returns back to the mean. And this is a clear indication that, you know, price is doing a tough job of advancing forward. And we have, at least at this point, if we're seeing a ship A swift rejection above us, we could assume that there's a lot of selling pressure. Right? The opposite can be said for the buying tail. So when a proper tail has not been established, this often results in a return to complete that auction. So a lack of a proper tail is referred to as a poor high or a poor low. So let's take a look at that. So poor highs and poor lows, or otherwise referred to as poor extremes, are typically the result of a loss of momentum. Alright. And not a firm rejection. There's no clear evidence that if we're moving up, that sellers have firmly rejected that advance, or if we're moving down, that buyers have firmly rejected that either. Alright, so after we take a look at these examples, I'll show you, just through my own artwork, what we're normally looking at. And you've seen this before, you've understood this idea in other terms. Likely, when you hear that the market is maybe favoring one direction and it is consolidating in a certain area, or it is continually pressing against a certain area, then what do we normally anticipate? We normally anticipate that that area is likely going to be revisited, whether it's consolidating at resistance or at support and ultimately yield to passage. So with these poor extremes, what they involve is again, a tail that has a greater width than two tpos. All right, so down here you see that this is one line of TPOs. Okay? Time, price, opportunity. So this is a good tail, right? So this shows that buyers rejected this move down. And when you unroll this, you see what this looked like. Okay? Price made an advance towards lower prices, or rather the asset did, and it was very quickly rejected and responded to by, in this case, the buyers bidding this up immediately. Alright, so these can either be areas where there are greater than two TPOs in width. All right, so up here is the example that we're going to be pointing to. This is an example of a poor high. So you can see, you just have one TPO right here and then immediately you have this odd distribution. All right? Immediately you could see as well. There we go. I said immediately back to back. You could see right away how this is not very balanced. This is not balanced at all. You see that it is favoring one side of the market and you can see that this is a poor high. So in favoring this side of the market, there has been no clear rejection yet showing any type of tail or immediate response by sellers. This can also be back to back days with equal highs or equal lows. Let's say in this case we're looking at a daily distribution right here. But if we had two cases where we had two distributions that were back to back and they had the equal highs or equal lows at one point, the same idea would ring true. And this is because what we can do is if we have two back to back that are kind of an inside day, equal highs, equal lows, we form a composite and we would form one distribution of both of these. And if you had two back to back at equal points, you would likely see that it would probably be the case that we had a poor high, or if that was at the bottom, it would be a poor low. And again, it would just be kind of dull at the extremes. Right? So this is a sharp extreme. This is a dull extreme. So not showing any kind of clear responsiveness by this side of the market. So this often is due to a loss of momentum. So in this case it's a weak move up. And we'll typically see that the market will pull back and it will eventually return to this area to complete this area. And this is often referred to as being repaired. Okay, so you've seen this idea before. And this is something to consider when we're looking at back to back days within a range, something to either play a mean reversion trade off of, or if we're within a range and we're consolidating against one area, and we have a composite with this to play a breakout. And just to show you what this looks like, to give you a more clear description, imagine that this is the profile, okay? And it's kind of dull on one side, and it has a very clear rejection on the other. So mind the artwork. But very clear rejection down here, immediate buying response. And they pushed this thing up. Okay, say it opened here, came down, was very swiftly rejected up, and now for the duration of this rotation. That's a nice rhyme. It's favoring one side of the market. So if you were to unroll this distribution, let's say that this was the prior distribution. So it looks something like this. We have poor highs, and let's say that we open up, or rather close this day right here. So now we close this day right here, and we see that the market is still favoring one side. We'd be looking for this poor high to be repaired. And if this followed or what preceded this in that direction from a left to right translation. So if we had multiple back to back days where we had, let's say Areas of balance, something like this, profiles. And then we're starting to have one side be a lot more dull than the other, showing poor highs. Well then we would look to potentially play a breakout in this direction. Because what this looks like when we undo these profiles, remember these are just distributions right now showing the distribution of price over time. If we were to unfold something like this, what we would see is it looks like this, right? It essentially looks something like this. If you're looking at a candlestick chart, it shows that one side of the market is being favored. It's consolidating against either a given resistance or a given support. And in this case, when we're talking about it being repaired, we're talking about a potential breakout opportunity. If you're consolidating against resistance, and now we've gained acceptance, we're looking for it to be repaired and move up, which ideally we'd look at the next target. It might be a naked point of control at a previous structure. It might be a weekly area, a daily swing point. Again, the idea is that the area is going to be repaired. So the area is going to be repaired and we're going to be looking for price to revisit that area. Now, this is not something that always happens, but in certain contexts, if we see that, for example, imagine that this is not a daily rotation, but we see this occurring and this is, you know, a five period composite range, right? So let's imagine that this structure is five periods formed into a composite and we see that we're favoring these highs. Well, then you're going to be looking for that breakout opportunity and using market profile, right? Using market profile and volume profile within here to see that it is confirming this action. Right? So volume profile is confirming this move up here. It's not like this is defoid of volume, all right? It's not like the distribution really changes much when we're using this. This is what allows us to really compress all this information down and see this very quickly. So what you begin to use is that pattern recognition skill where you say, okay, I see that we have a distribution over the last five days. It's not imbalanced whatsoever and it does have poor highs that are likely going to be visited. Okay. In this case you'd be looking to play a breakout trade and potentially what you would get is you'd get that area repaired and maybe that would result in something like this where you have a poor distribution, the area is repaired and what we do is really, we just visit the next target before being firmly rejected. Okay, so your next target is where you revisit. And now if we were to compress this distribution with this distribution, we would have something that looked more like this, Right? Because price moves up to an area. In this case, let's imagine it was our aforementioned target. And whenever it hit that target, whenever it approached that spot, that's when sellers finally stepped in. And this is now forming a more balanced distribution. So that's that. Guys, always look at these in context with previous action. Okay. With current rotations that we're within now, you could see this occurring on an intraday basis. So if we're looking at this currently on a daily basis and we're seeing that, for example, we're setting up and we have this daily rotation and it is halfway through the day and we're favoring the high, you could see this potentially setting up and look for some type of strength and microstructure again to set up for that long opportunity to repair or return to this high. And it's unfortunate that I don't have a camera on me right now because as I stopped moving this mouse, I did quotations with my hands as if you could see me. So that's that, guys. All right. This is one of the many anomalies that are part of market profile, and we'll start getting into some of the others. We're getting to get into imbalance as well and oddly shaped distributions, because again, if you were looking at this right now, this would just be another case of one of those anomalies. Right. We see that right here. We have an area where we just fall off. This is very squared out. It's not a even or balanced looking, symmetrical looking distribution. So that's that, guys. Have a fantastic evening as always. This is Ryan, AKA Kenner, Clark Exercise, proper risk management and trade effect.