Last week we discussed the importance to assign a filter process in order to better understand what the larger picture is showing. With going through the periodicity hierarchy of Yearly, Monthly, Weekly timeframes we can understand the higher time frame (HTF) and figure out the path of least resistance. That said, you can use this filter process on TPO/Volume profile charts to find some nice additional levels in the overall macro structure that are confluent with your intra-day trading levels.
When looking at a Volume Profile, we are looking for areas of acceptance and rejection. In acceptance areas market participants are in agreement on price while in rejection areas, one side of the market participants are not interested on a particular price and quickly reject these levels. Actually, you could call acceptance areas balance while rejection areas would be the extremes of that balance. Well, why identifying thes areas on a higher time frame now? The answer is quite simple: An intra-day level has less significance than a weekly level or a monthly level because the large market won't recognize the day trader’s shitty little whatsoever level when the market rejects the monthly profile's low volume area. This is the reason of the importance to figure out the path of least resistance on a macro scale.
Let's try to visualize this now. Looking at the monthly profiles, we can observe that the market opened inside of the previous month's balanced range and value. The conclusion would be a rotational behavior for this month and to trade the balance extremes of this profile. However, the previous month's high got taken out and we broke out of that balance to trend higher. Here a screenshot with the mentioned acceptance/rejection areas:
As you can see the rejection areas served as nice support/resistance levels. I also drew the distribution curves into this profile to highlight the acceptance areas (black).
Looking at the current month, we can see a current weak high and low. Also to mention is the weak high back from January. Poor/Weak/Unsecured highs and lows are potential areas to revisit.
Before we getting biased, let's take a look at the weekly profiles. The previous week rejected the previous highs and was quite rotational with a close inside of the time value and above the volume value. Based where we closed I plotted some potential scenarios into this chart for the next week. To mention is the current unsecured low as a potential area to revisit.
Moving forward to the daily profiles, we can cleary see our favorite 'P' shaped profile. A P shaped profile as we know suggests short covering. It seems the market grabbed some liquidity above the highs. With that said, I am quite bearish for the next day. The open and the reaction around value/POC will have a significant effect on how I handle the market. Based where the market closed I would look to short the VPOC with a target around the next liquidity area. A break above could lead us to higher prices obviously.
However, these are my own current views and could change with the time moving forward. Please do you own research because I posted this analysis process just for educational purposes only. Moreover it's only one brick of my whole analysis process. I would share some more details but the time is precious. I thinking about to create a video or do a livestream for the next time as it takes a huge amount of my time to write posts.
If you want to learn more about Market Profile take a look at the books from Jim Dalton. Recommendable is Doug Tucker’s Market Profile Primer and the original CBOT Market Profile handbook if you like free stuff. If you are a member of The Private Banker you can read educational articles about the Market Profile and the Volume Profile as well.
Let's do our best next week and as said I will try to create a video next time. Anyway, hopefully this article is of some help for you.
