Market Profile: Day Types

Alright guys, what's going on? This is Ryan, AKA Kenner and Clark. And in this video we are going to cover TPO day types. Alright, so again, TPO chart being a time price opportunity chart, covered this in the first Market profile video. And before you get into this video, if you have not watched that one, like we said in the beginning of that video, you need to watch all of the first material that we put up in the order flow roadmap. So most of the content in the beginning of the order flow roadmap was derived from what I had pulled from trading with Market profile as far as auction market theory goes. So it's really important that you have a firm base of understanding with that material first before moving forward. So let's get into day types. There's basically six day types or six structures that make up all of the small, more nuanced versions of those within Market profile. So there are six main structures and then obviously you're going to have slight deviations from those. Okay, so just to cover it really quick again. All right, Market profile helps us organize market generated information in a very efficient manner. So basically we could take a whole day's worth of rotation or you know, the rotations during a day and we could compress it all and look at it in the same way that we would look at, you know, a bell curve when we're trying to identify.

Where a certain distribution has been within a given sample, or in this case.

Where price was over time. With Market Profile, we are able to see pretty quickly with this information being compressed, we're able to see pretty quickly how either balanced or imbalanced the market is.

This helps us build a very contextualized picture of the current auctioning environment. Okay, so to start, I want to talk about initial balance because initial balance is going to be one of the more important parts of how we define or how we start to interpret maybe what type of structure we're seeing as far as what type of day type we might be seeing play out. Because again, remember that when we're looking at market profile right now we're looking at completed days. So we are largely going to be. There's plenty of trades that we could take around these completed days, around what type of structure that we're seeing, especially if it's a series of really balanced days and we take a composite of that profile. But the initial balance is going to be an important part in determining how we might consider the way that the day can unfold. The initial balance is where the market was for the first hour period. So for the first two periods on a market profile chart, each of them is a half an hour long. So basically the first hour after a market open. And this is way more important in a market where there are opens. In crypto, it's not nearly as important. So you'll see that if you're trading, this is going to be really good because this will help you in traditional markets as well. So having a firm understanding of these day types and what type of initial balance we see that typically precedes how they unfold, that's going to be important, especially if you're trying to take this, rather these tools into other markets. But with crypto, it's going to be less about the initial balance and more about the overall structure. More about the overall structure, how we're trading in relation to previous structure, and so forth. Okay. So I just wanted to get that out there real quick because a lot of the times we could have a certain day type, but we don't really have the same type of initial balance that it might normally warrant. If we're talking about trading traditional assets with a normal market open, a normal market open and market close, the initial balance is again, where we're trading within the first hour. This is where typically you'll see floor traders will search for the range, for the beginning range. And a lot of times, if there's a wider initial balance, this can be thought of as more of a wider base, a stronger base and more likely to contain prices. And if there's a narrow initial balance, you could typically assume that this is a weaker base and therefore it's going to be difficult to contain prices. So weaker initial balance will more often than not lead to more impulsive moves or just further exploration throughout the day, either to the upside, to the downside. And we're just talking about range extension, it could be in both directions. Right.

So most of our attention is going to be on trying to identify balance and imbalance brackets or trends, who is in control, and are there any structural anomalies. Anomalies to trade around? And we touched briefly on structural anomalies in the first video, but we're going to have a separate video just covering those because there's plenty of ways that they're, you know, but there's plenty of anomalies that we could pick up on, and no two are the same. All right. Or rather there are, you know, multiple times when there are anomalies that are similar to each other, but there's plenty of different times when.

It'S so Nuanced that it's worth having a separate video for these entirely, put it that way. So there's six day types.

Normal day, normal variation, neutral day, neutral extreme, trend day, and double distribution. Now, four of these, the first four. So normal day, normal variation, normal day, neutral day, neutral, extreme. These are more balanced, okay. These are more typical of ranges or ranging environments. The trend day and double distribution day, these are both trend days, period. So a double distribution is a trend. It's just a different type of trend. Okay. So what we want to do is study these day types and then hopefully by studying them and remembering how they typically unfold, you know, when we're looking at a day that is currently opening, we might be able to better discern how that day will unfold. Okay. Based on what has occurred in the past. Right. So we're always looking for patterns. It's just not always necessarily the patterns that many that maybe initially come to mind when you think of trading. You know, a lot of times when you hear patterns, you just think of patterns like triangles and heads and shoulders and flags. But the types of patterns that we're looking for are patterns in behavior over time. Right. That don't necessarily, you know, essentially this market profile, what we are saying is that there are certain structures that look similar. So I guess you could say there's a pattern there. But what you want to do is be able to memorize the pattern in which way the day unfolds so that you can hopefully better, you know, whether you, say, make a more educated guess or better predict how the current day or current environment is unfolding. All right, Based on that, hopefully that Rolodex that you build up that is filled with previous days and just experience. Right? So just having screen time and seeing this occur multiple times over and over again. Right. So that's why it's so important to study these things. So in order of directional conviction, right? And basically just think of directional conviction in, you know, how much one side is in control and think of continuation. Right? So obviously a trend is going to be at the top of the list, and a normal day is going to be at the bottom. So if you're thinking of from bracketing environments to likelihood to be explosive and continue trending, this is the order we're going in. We're going from normal neutral, neutral, extreme, double distribution and trend. And I think I left out one. Okay, I left out. What did I leave out? Normal variation. So it's actually normal variation after normal between neutral. So to start off a normal day, normal day Again, appears to be pretty balanced, with the exception that the initial balance is pretty large. Normally that's a lot of normals in one sentence. So the initial balance is typically. You'd say that it's probably 70% of the entire profile. There is swift one sided action in the beginning. So you can see down here in this profile, the green is indicating where the market opened. So that white line is actually indicating where the market spent the first five minutes. Again, the initial balance is where we spent the first hour. In the beginning of a normal day. We'll typically see swift control in the beginning from one side and that will result in the other side stepping in and cutting off any further directional movement. So you'll see that the initial balance represented the first hour. So we likely moved up rather quickly and we were swiftly rejected. Okay. You could see that as this was unfolded right within the first quarter of this rotation of this day period, we had moved to the upside. Okay. Not much of a swift rejection initially. You see that there are, there's no single print right here. So we've spent a little bit more than the minimal amount of time here. All right. With this specific rotation upward, this results in a pretty balanced profile. Okay. There is a defined edge, right? Or rather it seems like there are defined tails. Seems like a pretty balanced profile. Looks like your standard bell curve, even distribution. And again, because this is a more balanced environment, this is going to be something that appears like a range. Right? So this is the daily on the half hour chart, 30 minute candlestick. Again, this is the daily being compressed. It's into a TPO chart. And this is that TPO chart basically unraveled. So you see that the market opened down here, quickly moved up, settled in a little bit, moved up, was rejected, and then rotated for the rest of the day. Rotated from low to high to low to high, and finally closed within the center of the range. So it is pretty balanced. And we're doing a separate video on how to trade these different structures when we are opening up, for example, following one of these types of structures, rather. So let's say that the current day, this day has been finalized and we're currently now opening up within this range. So this is a normal day. This has the lowest level of directional conviction. So this is more likely to stay balanced to bracket or to range. Here's a normal variation. This is similar to a normal day. It has a smaller initial balance and has more immediate range extension. Okay. There's greater directional conviction to begin with. So you'll see that when we look at an actual trending profile. This is similar to a trending profile, with the exception that it's a little bit fattier, it's a little bit chunkier, right? So the market spent more time in certain areas than as if it were a trending market. So there's an initial response, in this case off the lower. All right? You can see that at the bottom here there's an actual previous point of control and a value area high. Okay? That's what's indicated by this previous dotted line in the solid line. We came up pretty rapidly. Again, market opened down here, five minute within this area, one hour within this area. This initial balance is small relative to the entire structure, but that's because we had immediate range extension. Now, range extension, remember, is movement outside of the initial balance. Okay? So greater directional conviction to begin with, but our response is immediately cut off at the top. So we essentially run into something that abruptly cuts off any further movement. And then we move more into again, sort of that normal profile where we have a more balanced distribution, more balanced range. So in this case, we're cut off, okay, we come back down and come basically back down to almost where the initial balance was. And you see we have this rotation downward and now rotating back upward. And it's a pretty balanced distribution at this point. Again, in terms of directional conviction, this is on the low end of things, more likely, indicative of a ranging bracketing environment, more balanced environment, again. So there's going to be excellent trades that we could take when we have multiple days like this lining up in a row or multiple days, let's say, of a, you know, normal profile, normal variation. At that point, we're painting a pretty clear range or pretty clear bracketed profile. And I'm going to show you how, if you're using something like Sierra, you could actually create a composite when you have a bunch of these so that you could define a composite high, low point of control and so forth. So normal variation, again, it's a more balanced profile still. So a neutral day is somewhere between that normal day and let's just say it's way more balanced than it seems. Way more balanced than anything else. There's no directional bias, but we have really strong initiative at lows and highs. So it is very balanced. You can see that this sort of looks like a distribution with really high kurtosis. Okay? So if we're looking at a distribution this large spike right here, really high kurtosis. So again, a very balanced profile. High probability for distribution between a range, low probability for a breakout. Now the initial balance is pretty centered in this case initiative being at the highs and the lows, meaning that we saw an immediate response, an immediate rejection at the high and at the low. And again, this was initiative. So we're seeing buyers bid it up at the lower end before any type of previous value. Let's say if we're looking at a previous profile and we're within that range, if we're seeing that, we're still coming down and we're still within it, we're seeing that bidding from below, we're seeing buyers bid this up initiatively. Sellers walk this down initiatively as well. But we are very balanced. Okay, Again, so when you have multiple days like this lining up in a row, it really helps you to paint a really defined range with those days by creating a composite to so you could take either rotational trades at the extremes. Whether we're talking about mean reversion trading. So that's what's great about these types of profiles is well one, we're seeing this after it's painted. So it's not like you got to see this happening before it did. But the idea is we want to be able to see that. Let's say we have two back to back days where we're within a range, really defined edges, we see really aggressive action at the extremes. Well, with these firm rejections, okay, when we have other time frame participants selling the highs, someone buying the lows, and I don't just mean someone as if it's one entity. This is a good place to take any type of mean reversion trade. Let's say we are within this range the following day and for example, these areas have still been respected. It's a good opportunity to take a mean reversion trade with it. Now remember, there's no real market close, so there's no settle that day.

There's really no use for the initial balance in the following day because it's not like we have a market open where floor traders are determining the range. Again, so if we're 24 hour market and we open up within this period, there's no reason to not respect the high and the low in this case. So a very balanced profile. So if we're opening up within this structure, current day, let's say this day is completed, we're opening up within the structure, there's great opportunities to take risk mean reversion trades, whether we're fading the low or the high. And again, if we are talking about trades outside of the range, we're looking for acceptance and any clear acceptance outside of a day like this typically has a high probability of resolving positively. At least initiatively. Okay, at least initiatively you get some type of first leg on the acceptance outside of this. In some case it might come back as a deviation, but you'll typically get that follow through. So this is a neutral day. Now there's an exception that's a neutral extreme. So in a neutral day, and I basically I clipped this chart to have both examples. So in a neutral day, a normal neutral day, you'll end up closing in the center of the profile. So you can see we opened here. We're going to be closing in the center. I don't have the close on this. I actually took it off the chart. It would have been a red triangle. Now in a neutral day extreme there's a little bit more directional bias conviction because we typically close at the extreme of one profile. All right, so we are closing towards either the low or the high. All right. And this is worth noting because it's a little bit less balanced. In that case, the next two days are going to be your trending days or trend day types. Again, these have high directional conviction. Okay. So your trend day looks like your normal. It sort of looks like this day right here. Right. Sort of looks like your normal variation as I said. But again it's a little bit thinner. The market spent a little bit less time in between. Because this is indicative again of a more fast moving trend, it's going to spend a little bit less time in areas before continuing movement upward. So again there's high directional conviction. In this case, the other time frame participant is in control. So typically we'll say that or as it's defined, we'll say that when we move out of the initial balance. So when we have range extension, let's say that we open up and we move above the initial balance and we have range extension to the upside. Well, what we're going to say is based on previous profile that the other time frame participant in this case, the other time frame buyer is in control.

They've moved the price out of the initial balance. Where again, if we're talking traditionally, this is where your floor traders are going to be determining the range or trying to determine the range. Alright. Again, this is a pretty wide initial balance and we had extension outward to the upside. The other time frame participant in this case is a buyer in control. So this is pretty one sided from the open. So the open is down here at this green dot. You could see previous structure. If you see that There's a little bit of a dotted line included. This looks like it would be a value area low, a value area high. So it looks like we closed at a value area low of the previous day. Here's your point of control. This might be a naked point of control from a previous day. I'm not sure because I cut this off. But we had a movement with conviction to the upside. And a trend draws other participants into the market. So an upward trend. You want to see that other participants, whether you call them greater fools, come in to sustain the movement. And if you're in a downward trend and you want the trend to continue, you're going to be looking for those greater, not greater sellers in that case, but I don't know what the term would be, honestly. Let's just say greater fools again. But you want to see more participants come into the market, right. For a trend to be sustained. So this is where volume is going to be really important, right? Because with market profile we want to see that volume is confirming where we are within the market. Right? So we want to see that volume profile and the TPO chart are confirming each other. So as a trend progresses, if we're looking at the volume histogram at the bottom, we want to see an increase in volume to the upside. We want to see that volume is maintaining this movement up. So the last thing we want to see is that we create this pattern up here and we start to have a more thin profile, right. Compared to the previous high volume node. So this is similar again to the normal variation, but it's a little bit less clunky, it's a little bit slimmed down, it's been on a diet. All right, this is referred to, if you've ever heard of, if you've ever heard to a market be referred to as a one time frame market, meaning one time frame is in control. The other time frame buyer in this case is in control. Because all we've had right from the initial opening drive and we're going to go over types of opening drives because that's going to be really important. The only case right now is we haven't had any turn back. The initial opening drive has been all drive upward. The other time frame buyer in this case has been in control the entire time. So this has been a one time frame market or otherwise referred to as a one sided market. And lastly, another type of trending day, but it has a little bit lower, rather less conviction or less confidence in terms of follow through. So this is your trend that really is a dump right now. There is an exception to this. And what negates it is. Well, I'll get into that at the end. And it should remind everyone of the BART pattern. Okay, So a trend day, being that we have this profile that is similar to a trend, but you can see there's two periods where it's pretty balanced, right? So. So balance shifts abruptly. So we're initially, you know, we open up here. Here's our initial balance. Okay. Initial balance sitting within what looks to be like a neutral day forming. Right? So we have, in this case, there's no real rejection at the low yet. There's really no real rejection yet until the. Until the pattern starts unfolding. But for the entire top portion of the structure before, this single print right here, which is right here when we unfold, looks pretty balanced, right? So the beginning is marked by inactivity. Okay, it's balanced. It looks neutral. And then aggressively, we shift to a new balance area. And there's really no trend. There's really no series of lower highs and lower lows. In this case, it's a very swift, aggressive move. Okay, so that small initial balance, normally we'd be paying attention to that in traditional markets because that's our base. We are abruptly moved out of this really narrow base, and this results in a new area of balance to be determined. This is often characterized or described as two balance profiles that are separated by single prints. And a single print is anytime that you get a structure like this where there's only one row of TPOs. So this is a low volume area, low volume node. This is a high volume node, and this is a single print. All right? Or rather, these are single prints. Okay. So the market didn't spend any time here. So there are two ways that we could actually approach this in the future. So we have this area that is still maintained and has not been filled. This anomaly has not been filled in the case, let's say, of a weekly. You know, what we can do is treat this area as a potential area where we'll come into in reverse. So if we see price approaching it from the upside, there are some opportunities that we could take for fading this because we'll see price wick into this area. And since buyers and sellers were not interested in this area previously, we might see the same response. We might see price immediately reverse. But if we get acceptance through this area, we'll typically see that price moves rather quickly. So in this case, here's your structure looking at. And I noticed I didn't go over the trending structure. I don't think I even went over. I didn't. I don't think I even talked about the neutral days candle profile. But you see what it looks like, right? So this is your neutral day. Everyone knows what a trending day looks like. But we're all with crypto familiar with what this double distribution day looks like because it always rather, sometimes it ends up in resulting. Rather ends up resulting in a BART pattern where you get this swift breakdown. Okay? It's another area of balance that forms. All right, so area of balance implying that there is, is a second value area, right? So buyers did not agree up here. Buyers and sellers could not agree and maybe they agreed down here. Now, all right, now maybe one side of the market is setting up to overwhelm the other. Maybe in this case with the market moving sideways, we'll pay attention to something like order flow. We're looking at delta. We're seeing that this is still being aggressively sold, but the market is moving sideways. Right? So in this case we see a bar pattern. That typically happens. Right? So this area is aggressively sold, but it doesn't break down. And, and what we get is we start to get this attempt upward again. And here's where this single print area matters because once we start getting acceptance into this area where this single print exists, all right, once we start getting acceptance into this area, you'll typically see that we're going to resolve this structure by moving back up through it. So any type of anomaly, all right, any type of thinness in this structure over time, we're going to look for these areas to be filled. And if this is immediate and we start to see that we're getting acceptance into this area where there's really no volume that was transacted. There was no, really nothing occurred. That's what we're looking at with the volume profile. That's what we're looking at with the TPO chart. We didn't spend any time there. We didn't really transact any volume there. When we're re accepted into that area, that's when we could get those really rapid movements back upward. This is something you really need to pay attention to. Again, this does represent an area that's a ledge that could be potentially faded. But at this point, you should really define your risk tightly because last thing you want to do is see price get accepted into this area because by the time it gets accepted into that area, you only have a little bit of time to enter into the trade. Or if you're A short cover before price moves rather rapidly through it. These are the different day types. Again, if I look at. If we take the market profile chart right now, and I'm just going to expand this so it's the same size as the window that I have open, because I have a specific window size open for this video. Just want to make sure that this comes across properly. We could see that this is a daily. This is a daily right now. So we're looking at daily rotations. And now we have a bunch of different cases that we just talked about, right? So we have this pretty normal day, no clear rejections at the low, at the high. Here's your trending day.

Here's your normal variation. Again, more of a normal day, balanced. Some of these might even, you know, this is more centered. This might be considered a neutral day. Okay? But again, some of these day types are also going to be indicative of longs covering and shorts covering. So patterns like this, the B. So this is known as a normal variation. But these B structures right here, Right here. And also patterns that look like a P. So they look like this. But the inverse, this would be what we would often look for for longs covering this type of structure. And the opposite would be the case if we're looking for shorts covering. We'd see a lot of mass on the top side of this and a lot of extension to the downside with really just all tail, right? So single print tail. So in this case, again, I mentioned how we're going to talk about how to trade when you have a bunch of these lined up like this, right? So things that we can do because we have a bunch of, you know, we have one trending day, right? But we have a high that's put in now. We've taken the liquidity from this high. So how I traded this the last day was what I did was I took these profiles and I merged them because again, a lot of these are representative of ranging environments. They're balanced. So they're balanced, they're bracketing. So what I did was instead of looking at them individually, being that we were in a bracketing environment, we took the highs. I made a composite, so I took all the profiles that were balanced and I formed them into one. Okay. Now, mind you, we had a deviation to the upside, but again, we mostly spent a majority of our time between 92.50 and 9,450. So within that $200 range, we spent most of our time. So now I have a value area low and a value area high of this balanced structure which gave me the proper setup to take when we were accepted outside of this value area. So I told you last night in that trade, rather in that setup that I talked about, which I took a short trade, that I was taking it a little bit prematurely because it looked like we were gaining acceptance below what it was a previously defended area. So value area low gained acceptance. You could see that when we gained acceptance, we came back up to test. We didn't get that full test upward, but initially we came back up, tested and were rejected again. So this is something that's really valuable that you could pay attention market profile for or that you can gain from market profiles and be able to see what type of environment we're in. So where you could take these higher probability breakout trades, we have a little bit more confidence because you see the market's been kind of stuck in this range for quite some time. So that's that guys, hopefully that has been informative. Our intention is to merge all of these in the same way that I trade merge all of these, the order flow portion and the market profile portion to make you guys the best possible traders. All right, so hopefully this has been informative. This is Ryan, AKA Kenner and Clark, as always, exercise proper risk management and trade effectively.