Market Profile: Developing Value Intro

So some of the things we're going to be talking about quite frequently are the terms you find right here. So the value area, the value area high, the value area low, the point of control and developing value. Now, for the sake of this video, when we refer to the value area high, the value area, the point of control, we're going to be talking about the TPO value area. So we're going to have a separate module on the volume profile, which you're going to find within here as well. We're going to talk about how we use this with the TPO value area and with the TPO structure as a whole. So in this case, the value area is the zone where 70% of the participation fell within. So what we're looking at here is what I have designated between a color change, okay, So I have it delineated as white. That is the value area. This is where we spent 70% of the time. Meaning if you fell within the structure, you fell within essentially as close to agreement as possible. So where 70% of the participation fell within, this is a zone. You could think of the value area. If you were thinking of, for example, let's say a normal Gaussian distribution. So a balanced distribution. In this type of distribution, 68% of the values fall within one standard deviation of the mean. So a very balanced distribution. And you would say that this portion, 68% in this case set up for this chart, 70% would be the value area. So anything that fell within that, anything that was close, as close as possible to the center of that would be considered more and more fair value. Right? So this is what we really pay attention to, okay? We pay attention to how we are rotating within that, how we are responding to the exteriors of that and so forth. We're going to get further into that. So the value area is where 70% of the participation fell within. So since this is a TPO chart, when we unravel this, where we spend 70% of the time throughout the day, very simply put, okay, anything that's marked in blue represents essentially an outlier. It represents a move that is outside the norm in terms of that day's events. So the value area high, that's just the range high of that. So if we're looking at a single daily session, the value area high is the high of that value area. And the obvious opposite can be said with the value area low, which in that case is the low of that structure. Now, the point of control, that is where we spent the most time. So the point of Control is where we spent the most time, the highest concentration of time. And you could essentially say that this is as close to fair value and the point of agreement as possible. And an even better case can be made for this when you see that this is confirmed by the volume point of control. But for now, obviously, we're just talking about the TPO point of control. So this is where the highest concentration is found. And I have this designated by this red line moving through the course of this profile. Now developing value. This is how value is changing over time. So essentially what we're talking about is how value is changing from one day to the next. Are we in balance? Are we still within the prior day's value? Are we continually having these overlaps? Do we have days where we're moving outside of value, where we are having one day within balance and the following day the entire value area is above or below? Okay. This is indicating the value is being established at new levels. So most of what we pay attention to when we're looking at a TPO chart is actually this value area. Okay. If you look at a balanced profile, let's say that this is as close to a balanced profile as we have right here. You know, if we go back to here, this is the most balanced profile that we have. Okay. When this is in balance, this is what we say is buyers and sellers in relative agreement. So if we open this up, you'll see that it's pretty much both sides, even participation. We have this mean reverting behavior, and it creates what is a very fair, valued, even distribution range. Now, the concept with the value area and in auction market theory, we cover this in the roadmap modules. So we talk about how when the market is balanced, let's say the market is moving sideways over a period of time. So we'll combine these two structures, for example. So this structure with the prior when price drops away from the point of control and towards the low of the prior day's value, what we look for is a responsive buying activity. And I've used the example before of if you had something like iPhones, let's say iPhones are $1,000, and when they drop in value, you would want to see that they didn't spend too much time at those lower prices. If demand was there, we should see them being bid up very quickly. So we cover this in the roadmap modules. This is just the concept of auction market theory and how or why these value areas are useful. But the value area is where the bulk of the activity is occurring. Okay. So what we're looking for over time and a lot of what TPO and market profile trading is, is short term oriented. So most of it is focused on the daily session is we're going to be paying attention to where we open up within the prior day's value or outside of the prior day's value and look to these levels for a certain level of response. So if we are within a balanced structure, we would expect that the market would continue to range. So we would expect sort of a responsive buying activity at the low value and a responsive selling activity at the high. Just to put very simply. Now, the value area from something like this to something like this is telling two different stories. So using this as an example and then this structure, and then this structure. Now this is a value area that represents balance, right? More of an indication of balance right here than you would have right here. Okay. They both are value areas. So they Both indicate where 70% of the participation was found, where we spent 70% of the time rather. But they're two entirely different structures. A market that is ranging is going to have a value area that looks more like this, even distribution within the entire structure, more towards the midpoint. So we will normally have the point of control being relatively towards the midpoint, open, close, not too far outside of value. We're looking at relative balance. When a market is trending, what we would say is that the market is constantly reevaluating value at newer prices. So a trending market is a market that is not accepting prices. One side is not accepting the current prices. In a balanced market such as this or this, the market is in relative agreement. Okay? So we would say that within this value area, buyers and sellers are in relative agreement. No one side is really doing a tremendous deal or doing a lot of work to push around the other side. We would say that they are again in more or less relative agreement. That is a balanced structure. That is a balanced structure. That is a balanced structure. Structures like this, which should immediately become obvious when you're looking at them, and this is the benefit of using the tpo, are structures that are not balanced. Okay. What they are again is value being reconfigured and redetermined at new prices, there is an imbalance. So a structure like this is considered a balanced structure. And this is what we're going to be referring to when we talk to. It's one example of an imbalanced structure. Now, imbalanced structures come in many forms and we're obviously going to be covering more of those Moving forward. But this is primarily one of the backbones that we're going to be building our entire approach on. We're looking for where value is developing. Okay, over time. Where is value developing? We're not just going to be looking at a single day. And that's the benefit of looking at something like a TPO chart. If let's say that we're only coming from this location and we are closing right here, none of this has happened yet. Okay? We know that value has just come from a trending period and is now in relative agreement. Okay. So if we open up this structure, we could actually see that it's in relative agreement, right? It is. Essentially, the market moves from a period of consolidation to expansion and then to consolidation again. And now the market is in relative balance. What we're looking for is how the market behaves relative to yesterday's structure, essentially. So what you're doing with TPO is not essentially trying to predict necessarily how this day is going to unfold, which we'll go further into as soon as we get more into things like the initial balance and that opening up within context or through certain levels. But we're looking at how we behave relative to current, previous levels, previous areas, rather, previous sessions. So over time, if the market has been moving within a range, this gives us a very easy structure to look at. Because now we don't have to look at a structure on a candlestick chart, or we would do something like this. So we look at a chart like this and we see that the market has moved from balance to imbalance to balance again. But we don't really have a clear idea about where the most agreement occurred within the structure where the most volume occurred. Now, when we use something like the tpo, what we can do is actually just combine these. Okay? So we're going to combine these and see over time where value has been determined to be Right. Or we're going to determine rather where value. Value has been established. Okay. What we're looking for is where buyers and sellers are in agreement. Because what we can do from there is begin to sort of designate the areas that we're going to look for responsive activity by the other side of the market when we roll into it. Right? So this is the concept of developing value. Where is price being accepted? Where is price not being accepted? Okay. In the areas outside of value, we want to see that there is an immediate response if the market is going to remain in balance. If the market is going to remain, let's say, auctioning sideways or within A range. We want to see responsive activity by the buyers, we want to see responsive activity by the sellers. And this is just one of the things that we're going to be building off of, moving forward, constantly looking for where value is developing over time. How, how value is shifting? Is value shifting upward? Is it shifting downward? Do we have overlap? Do we have cases like this where you have a value area that completely exceeds almost the entire prior day's range? Okay, so we have the value area here, new value area begins here and is constantly at this point migrating upward. This is one of the signs of a strong trend when value is constantly being determined at higher prices. If the trend is upward and if it's a strong downtrend, the value is beginning to be determined at lower prices. Okay? The market in agreement will have multiple days of back to back inside value. So what that might mean is, for example, here's your balance day. Here's a day that opened up within value or opened up slightly outside of value, crossed through the prior day's value. And again, you could see that since this level is essentially where buyers and sellers were in agreement, as soon as price gained acceptance back into this level, it sort of got back right into this mean reverting behavior. So move from the low to the high, back down to the low, and price is just kind of oscillating within this groove. What we're going to be looking for moving forward is how price again responds to these extremes. Do we move through value impulsively? Are we getting rejected constantly? All these things we're going to be looking for, and we're going to be looking for these behaviors with respect to where the value has been determined over time.