Market Profile: Intro to Trends Part 1

Alright, so back to environment types. So we have two categories we can be in. We can either be in a ranging environment or a trending environment. And remember, we have individual day types and individual day types are going to fall within one of these categories. So trending environments, right. So the market is normally more often than not going to be in a ranging environment. 70% of the time the market is going to be ranging or consolidating. And from these consolidation periods we will have, when we gain acceptance through them, a period of expansion where the market goes from consolidation to expansion, back to consolidation. So consolidation to expansion, back to consolidation. So when we're talking about a trending environment, we're talking about this occurring over a long period in time. So relative to the current structure, obviously you know, you could have a trending period on a five minute period, you could have a trending structure on a four, four hour chart that could be within a ranging period on the daily. Okay, so keeping this in perspective relative to the current time frame we're trading, it is a behavior though in which is marked by certain characteristics that are the same across all time frames. So trending environments are marked by imbalance. So the market is in a state of imbalance. So in a ranging environment, in a consolidation, in a bracketing environment, value is isolated to a general area. So over time value is not really doing much migration. It is spending most of its time within a given price range. And there is a relative period of balance. So if we focus on this area right here, while this is not exactly, it might not immediately look like a balance structure from an individual standpoint, over the course of these five days, we are pretty balanced within this range. Okay, so trending environment, a trending structure, a trending environment. Whether we're looking at, keep in mind, we're looking at something like this, we're not just looking at this. A trending environment is marked by imbalance. Took me a second to get that out. It's marked by imbalance, it's marked by a lack of symmetry. So we're not spending too much, much time in any one area. We have more conviction in one direction. Now everyone's familiar with this. We know what a trending environment is. If you study, you know, if you study market structure, if you study anything with regards to the basics, you know what a trend looks like. But what we look for is, as I said, value migration. So specifically in a trending environment, value is going to be redetermined at new levels. So it's constantly going to be re established at New levels. So if we are in, in, let's say a balanced environment, what we have is a mean reversion within this value area where buyers and sellers are in relative agreement. If we try to break this level and we're unable to confirm these new prices, price comes back down to the average, right? The value, the average area of price movement is staying the same over time. As prices broke above or even if prices break below, there's no increase in participation by one side to try to pull this to the low or pull this to the high, it begins to drop off and we get, again we get this mean reversion behavior. So within a trending structure we have the opposite. We have value that has been accepted at new levels. So if we have a composite that is formed within this structure, for example, we have a composite from here and we see that this is really just a larger range that is a lot more balanced. So now it looks balanced. Now you see that balance I was talking about a trending structure means that we have been accepted outside of this level and that value is being redetermined at a new level that it has not been before. So if we open the structure again, we see there is a lot of overlap in this range. And now finally we have value migrating to newer levels. In this case, it's migrating north. And this is what is a characteristic of a trending environment. When you have value that over time is shifting, it is either increasing or it is decreasing. There is a more one sidedness to this market. So when we go into specifically the concept of rotation factor, we'll talk about how aggressive the market is towards the highs. And this is confirming the move upward. We could look at something like the level of expansion with regards to the value area that it is increasing over time as much as it is also changing in terms of price levels. So we see that this value area, these value areas are increasing over time, the volume is increasing as well. You could see that the point of control is going up as well with this trend. And then finally we have a big move in which value is completely redetermined at new levels. So volume should be in favor of the impulsive move and drop during the pullbacks. Okay, so we want to see in an uptrend that as you've probably gone over with candlesticks, that in the move up, in this large expansive move, we have value occurring over a greater range. That volume is confirming this. So volume again shifting up with the structure, most of the participation being towards a high. And then in the pullbacks we Want to see that volume begins to drop off. We want to still see that even if this temporary balances, that we get a more aggressive move that continues upward where we have this value migration. So we want to look for the same things. And remember, this is just sort of the 101 video on this. We want to look for the same things that we would look for in a ranging environment during a trending environment. So in the pullback, we want to see that there is a level of absorption. That's obvious. So if there's aggressive selling here, we want to see that it does nothing to move prices further down. And then we want to see a shift in momentum out of this level from, in this case, selling to an increase in buying momentum again and again that follow through in volume. But the most important thing just to understand a trending environment is that there is this value migration, okay, In a ranging environment. So in this micro range right here, or even if we pull over to another range within this structure, something like this, what you have is you have a ton of overlap. Okay? This is a very balanced structure, all right? This is a market that is ranging. This is a market that is bracketed. It has very defined highs and lows. It has a very defined value area. We only begin to shift when value is accepted at new levels. Okay? Just think about value as, again, being closer to that fair value where buyers and sellers are willing to do business, where they're doing the most business, where they're in the most agreement. So if we say that in this range, this is where they're agreeing the most, well, if suddenly we're having a lot more business that is done outside of this range, well, it looks like we're reevaluating at new prices, and we'll likely have some level of continuation outside of this level. So a trending environment is marked by imbalance. So the individual structures are going to be these imbalanced structures to begin with. So your impulsive move to begin is going to be an imbalanced structure. There'll be a lack of symmetry. So a structure like this lacks symmetry. Move like this lacks symmetry. It involves a lot more conviction in one direction. And it also occurs that rather, what occurs is this value migration. And by value migration, I mean that the value areas are not confined to a specific range over time, they are shifting. And the level of strength that we'll get further into, specifically with regards to the trend, we could pick up on this by paying attention to things such as how this value area is changing over time or where this point of control has been, or where this point of control is changing, rather, how this point of control is changing, meaning the level that it's at, as well as where most of our participation is occurring within these structures. So this is the basics of a trending environment.