Market Profile: Intro to Trends Part 2

Alright guys, so let's talk a little bit more specifically about trends. So trending days, trending periods. What we talk about with trends compared to ranges is that they're marked by again, imbalance, lack of symmetry, value migration. So remember, within a range what we have is normally we have a great degree of value overlap. So what we have is essentially price is confined to a given area over time we don't really see too much deviation with regard to this value area. Whereas a trend what we see is value migration. So we're paying attention to the value area and over time we're seeing that this value area is constantly being redetermined at new prices. So the concept of a trend is it's a divergence of price away from value. So price is constantly falling into a level of imbalance. The there is a great degree of one sidedness. So typically buyers are very much in control or sellers are very much in control. And we're moving from a period of imbalance to periods of semi balance, back to periods of imbalance and so forth. So the volume obviously is one thing that we're going to be keeping a close eye on. So volume in favor of the impulsive move dropping when there is a pullback. But there are a few other things that we're going to be paying attention to during a trend as well. So unlike in a range where we said that getting involved at the midpoint, so if we look at something like this range over here where we have a range that's beginning to form after this trend, if we're trading a range, what we said was that getting involved at the midpoint, let's say we're intraday trading, getting involved at the midpoint without the presence of a strong trend. So imagine that we did not have this very large leg upward without the presence of a strong trend or one side of the market being more dominant than the other, getting involved at the midpoint is not necessarily a good idea. It might be where there is a ton of liquidity. So we'll look at this example right here. Just combining all these to form a composite. And if you don't understand what a composite is, make sure that you watch the composite video that follows this. But getting involved at the midpoint, where the most liquidity is, this is an area where you can get flat footed when we are in ranging and bracketed conditions. Because again, this is the most agreed upon area, there's not really any imbalance in the market. We are marked by a market in balance. Okay, so in a trend there's a bit of a different story. So when we have the presence of a strong trend, so we're looking at, ultimately we have a break from balance down here, multi week range, we break upward. We have a very impulsive candle, a lot of one sidedness. There's a ton of volume in this movement. This is looking on the tpo, obviously not looking at any other chart right now, but there is a ton of volume and momentum behind this move. In the presence of a strong trend, unlike a range or a very balanced market, getting involved at the midpoint or getting involved at the point of control is actually a decent level for risk reward. So if we have a very strong move up and we have a pullback to the midpoint of a range, let's say for example, we're looking at this very impulsive move, we balance out, we have this period of consolidation for a day, after which after a trend you're going to expect some level of consolidation before you have continuation. Getting involved at the midpoint is not a bad idea. So we see that the market attempts to make a move upward and instead the market after that failed attempt revisits the point of control. So if we imagine what this looks like, for example, we'll just put the drawing over here. There we go. Okay, so really quickly, if this is a range, what we're saying is that as we talked about in the range videos, the best area for risk reward is to get involved at the extremes. This is a mean reverting environment. There's no presence of a strong trend. Okay, maybe we've been consolidating for a prolonged period of time and we have a very defined range. Getting involved here is not necessarily a good idea. This is where most of the chop occurs. There's not a whole lot of directional certainty over here. So. So let's say that your idea is that we are going to treat this as support. We're coming back down here. You think that this is going to be treated as support. You define your position, maybe a stop under the midpoint of this level in anticipation of revisiting the high, but instead price is continuing to mean revert and blows through your position. And this is obviously just one simple example. But the idea is within the range, the best area to get involved is at the extremes when there is a presence of a strong trend, meaning we're coming from a very impulsive leg. Any type of consolidation will be treated in anticipation of continuation. Unless there are some obvious signs of failure, obvious signs of absorption. We're going to be looking for Continuation, especially if this has just broken from a previous range. So if we were stuck in a previous range and we've just broken from a previous range, what we're saying now is that in the presence of a strong trend, getting involved at the midpoint is actually a good level to get involved. Okay, for continuation after this pullback, getting involved at the midpoint, at least we could define our risk based on the low of this structure, which is this micro range of forms after this impulsive move. And this is a good area that we can actually get involved in a trend. In this situation in particular, it's actually decent to rather define our risk and we have a little bit more directional certainty. The same idea. If we are moving down, there's a great degree of impulsiveness and conviction and we temporarily range getting involved at the midpoint, in this case, break down below the next high. Let's say in this case that we break down below the next high and price is continuing downward. Getting involved here is decent because at least we could define our risk based on this most recent high, which is again, this is just all occurring within this micro range. So it is a range, but it's occurring in the presence of a very strong trend. So in the presence of a strong trend, unlike a range, midpoints are decent areas for entry and especially points of control where fair value was established in this brief period of consolidation after an impulsive move has been made. Also to remember, as we reiterated in the first video, what we should be doing is paying attention to shifts in value within a trending period. So over the course of, let's say again, price leaving a prolonged range, and we finally have some impulsive move outward with conviction, we. What we want to be paying attention to is value migration. So to make sure that the value area is constantly moving with this trend, ideally you would want to see that if we're starting off to be in this very compressed state, that we begin to expand as the trend continues, right? To indicate that the ranges of prices are continuing, that value is not confined to any one given area, and that we're seeing no longer any kind of value overlap. So different trends might be defined by different levels of strength. If we see that, for example, we have a situation where we have a day like this and then we have the value area the following day being much further out than this day, we would say that this trend is potentially stronger than something where we have a good level of overlap. Okay, so for example, let's just draw another example. If we had an example of a Trend like this, where you have your value area right here and then the next day's value area is overlapping. We would say that this trend is weaker than a trend that looked like this, where you had their value areas very scattered apart and moving with much directional certainty. And this is because when we're looking at something like the value area, this is what we're going to be monitoring to see whether or not the trend is beginning to slow. So what we're going to be paying attention to is when we have a certain level of value overlap again. So this is one of the signs that, that the trend is coming to an end, at least temporarily. And we're going to start re establishing any kind of baseline from this point. But what we can see is through the period of this trend there was a strong directional move upward. We had value getting away from previous day's value quite considerably. You could look at the value compared to the previous high as well. That would give you some indication that this trend is exceptionally strong. But what we're doing is paying attention to a shift. What we have over here is finally a case where value area is up here and the following day that we open up the value areas completely outside to the downside in the opposite direction of the trend. So we're paying attention to a rising value area. And it's also important to pay attention to the rising point of control. So you want to pay attention to make sure that the volume is constantly being re established at higher levels. This is the same concept as paying attention to the value area as well. One thing that we definitely want to pay attention to is our close in relation to where the volume came in. So rather our close in relation to where the point of control is. So when we start to see that, we close well below the point of control. So we're looking at where price spent the most amount of time and then underneath that we have where price transacted the most amount of volume. When we start to see that we close well below that. This is an indication that the trend is coming to a halt for reasons that we'll get into once we start covering more stuff in order flow. But this is an indication that we might have some level of trap participation. At the highs where there's a ton of transactions that occurred up here, the price did nothing to stay above that level and rather close lower. So we have two very strong indications over here that at least we are likely going to continue, or rather likely from this point cease to continue this trend and to fall into some level of consolidation or bracketed market or potentially an area of balance over time. So the last thing to point out just brief point is that low volume nodes as well. So when we're looking at for example when we're looking at a trending day so we have a day like this where it necessarily doesn't look like a trending day at the bottom but we have a strong directional move upward low volume nodes in this case in the presence of a strong trend because we know that we're coming from a strong trend here after consolidation we're continuing this trend. Low volume nodes are good areas to get involved as well. So we see that if we open up this structure can we have one move upward, another move upward this low volume node within this level above the point of control these are good areas to start looking for positions as well. So getting involved at low volume areas the same idea as getting involved at the midpoint within these structures just represent good or rather potentially good entry opportunities.