Profile and Flow Series: Double Distribution Reversal

Alright guys, what's going on? This is Ryan, AKA Kenner and Clark. And in this video we're going to be talking about trading a double distribution setup. It's a setup that we normally see the day following a double distribution or it is possibly something that can happen intraday as we are beginning to paint what is going to likely resolve at the end of the day as a double distribution.

And this is part of our Market Profile order flow roadmap trading series. And in this particular video, again we're talking about trading significant levels. So just to go over, we went over day types in a previous video within the roadmaps we talked about Market profile day types. And a lot of them can be just broken down to either being very balanced, somewhat balanced, or not balanced at all. Which is basically what we're doing with Market Profile. We're trying to identify what type of environment we're currently in. How you would characterize it in Market Profile, it's not a strategy, it's not a system. It just allows you to really compress and organize the data in a very easy to use manner. It takes everything and compresses it the way that you compress information or a sample down to a bell curve to get an idea of where the average was or where the distribution was. So with Market Profile will sometimes have very balanced days, we'll have days that are not balanced at all, that are very skewed. Okay. Again, skew. If we're talking about distribution favoring one side or the other, we might have days that start off very balanced and then immediately break out of that structure and then go on to resolve a new balanced area. And that's more or less what we're going to be talking about when we talk about a double distribution. But I don't want you to get hung up on the definitions. When you're looking at these patterns, you want to be able to identify whether or not the market is in balance or not. Okay. And whether or not when it's moving in a certain direction, it's doing a good job of getting there. All right. Is it being supported by buyers? Is the market selling off continue to be supported by sellers? Alright. Are we starting to see a shift? So market profile is something that we use like any other type of chart to substantiate a case for taking again trades based on where the distribution was, where buyers and sellers have favored. Okay. Where the market has rejected us heavily. It gives us an idea, or rather gives us some context as to what is currently taking place in the auctioning environment and the trade that I'm going to be talking about Today, this is February 13th, actually resolved itself the way that we would normally see this potential setup occur if we're following a double distribution day. So, so if we had a double distribution day similar to the chart that you're looking at right here, and we currently opened up the following day and we favored the top side of the lower balance area that we were within, in this case the market in this example moved up. But in the case today, we're talking about the market moving down abruptly. So when you're looking at market profile, a lot of the times you're going to be referring to previous day's market profile, you'll refer to composites of previous days, you'll refer to weekly profiles, naked points of control, value area high, value area low. Everyone is like if familiar with this right now. But you're also going to try to develop a sense for considering that you are studying how days have evolved previously, you'll hopefully be able to, as the current day is evolving, get a feel for how it might end up eventually completing, okay, what type of structure we might complete. And if you could begin to identify that pretty early, hopefully you could really set yourself up for at least increase in the probability that you will place successful trades. So in this day on February 13th, the structure actually ends up more or less completing like a, it completes as sort of a mix or a hybrid between a trending day and a double distribution day. Now normally a double distribution day, it's going to again start off with low conviction, low confidence, pretty, pretty inept in that, in that sense, really kind of listless, lifeless, inactive, all these words you could describe, but it is within sort of a balanced area. And then what happens? Balance shifts abruptly and aggressively and it extends to a new range. And you'll see that normally this extension upon completion is going to be best marked by an area with single print tpos. So market didn't spend any time here, abruptly move from one area of balance to the next. Okay. And in this case we close down here. All right. But in this example it's a little bit different. We actually open more within the middle and then end up moving downward and then back upward, which is essentially the trade that I'm going to be talking about. So this is often. Double distributions are often event driven. Now you don't really need to know all this, okay? The double distribution pattern that we normally see in crypto, one that precedes BART patterns, alright. And hopefully by the end of this Video, you'll understand just what is exploitable and what those BART patterns are seeking out. So this is often characterized as the structure that you're currently looking at, but the one that we're going to be talking about, it's actually a little bit more completed today and it looks more like a trending day. It doesn't necessarily look like the epitome of a double distribution. Okay, but the. The play was occurring in the same fashion. The setup was occurring in the same fashion. This is what it would look like if it was on candlesticks. But again, just moving down to give you an idea of what this day is completing as we're looking at February 13th. This is February 12th. February 12th is a pretty normal neutral balance day. It would have been considered a balanced extreme day if we had closed either to the low or to the high. But again, this is very balanced. We open at the low, spend a brief amount of time at the high before being rejected by this extension, coming back down, and again spending probably more time ranging and bracketing than anything else. So we finish very balanced. In this case, we open establish some type of balance higher and then swiftly move down. And you can't really see from this pattern that you swiftly move down until you actually unfold this. So you see that the market moves up slightly moves down and then swiftly covers this ground in this case. And it doesn't start off again. It doesn't look like a perfect double distribution, but the setup is still the same. Alright, so we're going to be focusing more on the lower portion of this structure. And the importance is what we talk about down here is going to carry over into how you could play the very clear structures that paint as double distributions. So in this case, the setup resolved itself in the same fashion that we normally would take advantage of if we were trading a day following a double distribution. So it's just the prime example, rather. Okay, so what we're looking at is the current day, February 13th, if we want to look at it on TradingView right now, here is the current chart where we currently sit. And you can see that again, you could use volume profile. So here's the previous day. Pretty balanced as we expected, ranging drifting upward. In this case, if we were to combine these two as a composite, you'd expect this to be more balanced. Over here we move up and we're rejected.

The point of this trade is to take advantage of the lower portion of this balance. So we come down pretty quickly and you can see that the market stalls out right here and this is where we want to start paying attention to. We're looking at normally what is a very abrupt movement, alright? So it's normally a very abrupt movement. So that's why this setup is actually useful. Even though the structure does not look like again, the prototypical double distribution, alright? The swift and violent movement is what we're seeking to take advantage of. Because again, and this is why you should not worry about sticking to exact definitions or crystal clear or absolutely perfect structures. The idea is still the same, all right? We are violently dropping.

So there is a very abrupt movement. So you have a large amount of distance that's covered in a short amount of time. So we barely spend any time in this given middle point and we violently move down. And what you'll look for again is you'll look for very aggressive selling into these lows. So very aggressive selling. So looking for that negative delta towards the lows, alright? And then you want to see a shift in the participation. So this is just on a candlestick chart. I'm going to show you looking at a volume profile or a delta profile and I'm going to tell you why it's actually really useful to look at a delta profile. So similar to a volume profile. Now I will use different types of footprint charts. I'll use your delta profile footprint chart and then I'll use a standard just square, normal background.

Red or blue with no shape to it. Okay? So in this case it's going to be important to actually sometimes look at the volume distribution at a volume profile level of individual candles and we'll get into that. So we want to see that this area is aggressively sold. Now the idea is the market has moved up and there's been a very violent, abrupt move to the downside. So what happens is, especially in context with where we've currently been at a key area of resistance, the immediate thought is that this is a short opportunity. The immediate thought is that there is going to be continuation, that this is going to continue to move downward. So we'll have traders that are already in position short, but then we have traders that are aggressively hitting the bid. So we want to look for those aggressive sells coming into this area in anticipation of continuation. Alright? There's a little rhyme for you. So what we'll look for, okay, is we'll look at the volume profile or the delta profile and we want to see where the pressure is, where it shifts. So you'll likely see, alright, if I was going to take out my drawing tool right now, what you'll see is if we're looking at the volume profile for these candles individually, it'll go from something looking shaped like this, okay, very thin at the highs, very dense at the bottoms. So a bunch of these types of candles, thin at the high, denser at the bottom. And you'll notice that a lot of selling is in the lower portion of these. The lows are being aggressively sold. You want to see the lows aggressively sold. And looking at this case, this type of volume profile or delta profile can very easily help you visualize that. And then what you want to see is there begin to be a shift. So you'll see that we go very aggressive, very aggressive, very dense selling towards the lows. And then it'll sort of be like that. Aggressive selling is somewhat evaporated. And in this case, it is useful to pay attention to something like the order book. Although it can be deceiving if you're noticing that there's a good amount of stacking below this, that's an indication that the bid is strong. So the bid being strong and us being able to see that there is a shift. Let me get this drawing tool out of your way. A shift in the delta is an indication that the trade is setting up. So that's one of the first things you want to pay attention to. One, you want to see that this type of pattern occurs. There's really limited amount, follow through. So limited amount of follow through aggressive selling. And the market is beginning to stall. So normally with continuation, you actually don't have too much time to enter in on something. So you don't really get too many opportunities. Sometimes you do. But when you see that the market is being aggressively sold, but the bid is remaining strong, and then you see delta begin to shift, that's when you start paying attention to the other side. Right. So when you shouldn't be looking for, in this case, short term shorts. Right. Because the idea is everyone is assuming that this is going to continue. So the punishment in this case is punishing anyone who is just taking that immediate bait. All right. Who is not in position earlier. Okay. And in this case, punishing them means aggressively moving the market against them. Because at this point they're trapped. And once you have those aggressive buyers stepping in and you walk above the positions that are trapped, let's say we're paying attention to those delta profiles and we see that most of the density is occurring in these lows. So if we're looking at volume profile and we see that there's a lot of profile below and then we start to see aggressive buying come in above those areas. Well, then we know that those areas are currently trapped. That's the indication that we want to look for. Again, how we're positioned above those areas. And you have key market structural signs. You see, for example, another thing we talk about lower highs, lower lows, and then what happens, you're beginning to shift, so you're beginning to change in slope and you're beginning to change in patterns. And you could even say that maybe off of the first case. So the first time that we make a high or low than a previous high, that's another case where we would want to be paying attention. If you're not already anticipating this occurring. So this is the type of behavior we want to see. We want to see that shift in delta. Now, to give you an idea of what that looks like. And before I get into that, this trade setup is based on the first high after the spill. So your first high is likely going to be an area that is going to be defended. And if there was going to be some type of swing failure at this area or major reload in shorts, you're going to be wanting to pay attention to this area specifically and how we are approaching this level. Okay, if we're approaching this level and we see that our distribution and I'm going to show you this on the next chart towards the highs begins to disappear, well, then I wouldn't be confident with this setup. I wouldn't be confident in entering in. Because what I'm going to be doing with this setup is I'm going to be likely entering in before any type of real break in confirmation. The type of confirmation I'm going to be paying attention to is more leading than anything. So I'm going to be paying attention to this breakout and putting a stop at the low preceding the breakout in anticipation of the breakout. Because there is a possibility that we do just mean revert and we do just rotate back down to the lows. And we're going to be paying attention to how we respond at this high. And this is a high where you might be able to manually close out this trade if it doesn't go in your favor. So what you're going to want to see is buyers aggressively bid this up and you'll see this on the next chart. And if you're paying attention to the offer at this point, if you're paying attention to the density of the order book, you are going to be looking for slight stacking to begin with, but likely that area begin to lift. So if you're looking at a more complex order book. What you would want to look for is some level of pulling. So instead of stacking at the order book, or rather stacking in the offer, the ask, you would want to look for pulling or evidence of, in this case, passive sellers pulling their orders to not step in front of price. Okay. Because at that point what's going to happen is when this area is broken, that all those sellers who are trying to passively sell, when they pull their orders, they're going to be creating a liquidity vacuum. So what that means is price is going to pass through here rather quickly. And that's why we're going to be likely buying based on confirmation of evidence leading up to this rather than confirmation of breakout. But again, this is a trade where you're going to be putting a very tight stop. Your stop will be on the low preceding the high of this structure and your target is going to be the previous distribution. Alright, so this is why in the case of the, when we're talking about something that is a picture perfect double distribution or the previous day double distribution, in this case, when we talk about the setup going back to the structure, what we would be looking for is we would be looking for something like this. We would be looking for a break of this high.

Covering this zone, targeting this low. So where most of the volume took place, arguably you might put down the break over here. You could see that if we're just looking at the volume profile for this structure, even though this is somewhat painted over here, you're likely going to be looking for the break of this high. So from the low to the first high and targeting the low. So you're targeting over here, your breakout is over here. And what you're trying to capture, that swift move through this zone, all right? And it's going to be rapid. And that's why you have to almost take advantage of this trade with a little bit more faith than you would by taking a breakout confirmation. Because this is going to move rapidly. If you're going to enter into this type of trade, you're going to want to capture most of this without incurring all the slippage that might occur after the trade is already in motion. Okay, so when you're looking at a previous structure, so let's say that we're currently opening up and this is our current structure and this is day two. So this is day two and this is previous day structure. Again, this is the area we're going to be referencing. Okay. The previous day high of this Lower balanced area. Okay, Targeting the low of the high balanced area. Okay, just to clarify. So if you're looking at this setup and the day has already expired and we're currently opening up down here. Okay, if we're starting to favor these highs, and we start to see again, that change in participation from aggressive selling to aggressive buying, that's going to be your target. It's going to be the previous balanced area low. So if we're looking at the volume profile, this is what it's going to look like. Okay. You're going to have heavy selling come into the lows. So you could see that the lows are dense. In this case, a lot of red. A lot of red coming into this area. As we move up, we begin to thin out. All right, you have a little bit of density here in terms of buyers, but you can see the uppermost portion of the structure, that little blue bar, it begins to taper off. Okay, we begin to taper off at these highs as well. All right, come back down. Aggressive selling, sellers aggressively stepping on this in anticipation of this, continuing to break down. What happens? We balance out again. Buyers take over. You could visualize this ebb and flow now of buyers and sellers. Okay, buyers come up again. But what do we see? We see that buyers begin to thin out right here. So looking at, again, this shape towards highs. We don't want to see this. All right, we don't want to see this. We don't want to see this. What we want to see is this. Want to see something that looks more like a P. Okay. It looks a little bit more sturdy towards the top side. Because in that case, it's going to mean that most of the volume is taking place up there, which means we have upward volume, upward buying, action, aggressive buying towards the highs. So as price moves up, it's being supported by newer buyers. Right. Each and every time we're moving up, more, more buyers are coming in. So in this case, we're approaching the low again. Coming back down to lows, rotating back down. You can see it's aggressively sold again. So aggressive selling again, but no break. And now here's where you actually see the very clear shift. So we go from red, red. The lows again are holding now. Coming off these lows, you can see buyers really begin to step on it more. They are beginning to get more confident that these lows are holding. And you can see that in the behavior. All blue.

Very little selling. Now here's one of your signals. The amount of density in these candles with blue and just blue and towards the top side. So if I just eliminate these drawings, look at the top portions of these structures. All right. Much denser than over here, than over here. Over here, over here. I'm talking about the uppermost portion. Okay. What we want to see is that as price is moving up, more buyers are coming in, buying this up the entire way. Okay. Because they're not anticipating at this point the price is going to pull back. So they're kind of creating this self fulfilling feedback loop in which price is just going to continue up now because every single chance to check back, it's being aggressively bought up. So in this case, price has this very aggressive move up all buying support right now and you get a slight pullback towards the high. But again, paying attention to that volume, right? Nothing. Okay. Complete nothing Burger. And then here's your break right here. In this case, you would want to be positioned after this. So after you spot this, after you see that these lows are aggressively sold, you want to be in position and your stop in this case will be below the low where the strength was established. In this case, you have the strength as for the reason that you are entering and you're looking for this to carry through. And this is just one example. There are many examples where you don't even have any pullback right here. More often than not, after the high is being tested for the third time, okay? And the lows have sold, all right, Everyone is beginning to lose faith in this case of the short, all right? And anyone who's currently short is beginning to really think back on their positions and whether they're a good idea to hold or not. Okay. If anything, approaching these highs for the third time, they might consider closing out. And all of that closing with all this aggressive buying leads to that move upward. So again, to keep this simple, what we're trying to do is when we're looking at a day unfolding, okay? So the current day, when it unfolds rapidly. In this example, we have a previous balance day. You want to look for that shift, that shift in this case of a participation, the low's holding and you're going to be targeting the previous balanced area. So when we're looking at a double distribution, the optimal trade for this would be in this case having a previous day double distribution, us opening right down here. So again, opening, say we open here and we come down here. Test this area again and you're starting to see that behavior that we talked about in the previous slides within the next day structure, okay? With relation to this double distribution prior day and in this case trigger is going to be the break of the high. All right. Or that aggressive buying towards the high and you're going to be looking to capture this meet. Alright guys, so hopefully that was informative. If anyone has any questions, of course, feel free to let me know. Again, this is the setup that we saw for February 13th. All right. But again, just giving you an idea, you could see these lows aggressively sold and you begin to see that strength and microstructure that we talked about as well. So strength and microstructure, look at this. If we're looking at this on a weekly time frame, we would say this is a clear downtrend, right? Microstructure, same thing as macro structure. The patterns that we're paying attention to, paying attention to highs, lows and then a shift. So in this case, if we're talking about a shift, where does this shift occur? The shift occurs right here. All right, so you go from a trend downward to suddenly taking over microstructure right here. All right, this high, we're above it now instead of continuing this path downward and then here you're clearly closing above one of the highs within this microstructure. And at that point all of this, looking at this bar chart, looking at delta, should be more than enough reason to take a trade on the anticipation of breaking out of this high and testing these lows. Alright guys, so that's that. This is Ryan, AKA Kenner and Clark. Hopefully this is easy to understand. If you have any questions, always feel free to reach out to me. Everyone have a fantastic evening.