Market Profile Part 2 - Profile Structure

hi guys um in the in the second part of Market profile educational series we're going to cover about the profile structure uh now profile structure is um extremely important to visualize what is coming forward uh this takes time um to learn learn as an anticipate but uh uh once you get a hang of it it it it uh gives you a insight into what the market May do going forward now uh at this stage if you have some friend or some Mentor who follows this uh technique of Market profile do get in touch with them

because um especially in the profile structure part if there is somebody who's experienced in this in this field and if you get along with him and discuss day and day out you'll learn much faster all right so keep this thing in mind um let's begin now the profile structure is um important because it helps in the intraday trading and positional trading um now now um I'm not an intraday Trader but uh whatever Concepts we'll discuss here they're equally applicable in uh intraday trading and positional trading because the auction process is the same it's not different

um why the profile structure is especially important is because it gives you an idea about whether the market will actually move or not and that is very important for a Trader you can be in an asset and if it doesn't move move up or down you can bet you're going to lose a lot of money but if you know something has a higher probability to move then as a Trader you can focus on the on the structure and uh and a way to profit from it now now the key to identifying what kind of structure

might come up is is called um is is trying and analyzing the initial balance now initial balance if you remember from the ne from the previous tutorial was the first UH 60 Minutes of trading that was uh uh as shown in the example um now the profile structure also tells you or gives an insight into which other time frame Trader is present or whether otfs are present or not or you don't want to be trading with the local because they don't cause Direction in the market you only want to be um in the direction of

the other time frame Traders now the type of profiles that we're going to study is the normal profile normal variation profile Trend profile uh non- Trend profile and the neutral profile um I just want to stop here for a moment and tell you that all the books and the literature that you'll get on Market profile refer to these as normal day normal variation day and so on because uh Market profile is an intraday method that is why most of the concepts discussed in the books are based on an intraday technique or intraday terminology what I've

done here is is made it for positional so that it can be easily filtered down to intraday all right um so so let's begin the the first kind of profile that we'll go through is the normal profile now see the normal profile has a very wide initial balance now what does that mean a wide initial balance would mean that it'll be uh hard for the OTF Trader to breach it you know imagine it like um you know a balance the more weight you have on one side the greater weight you have to keep on the

other side to you know shift that weight to shift that balance so it's it's something similar to that if you if you have a very narrow initial balance then it is much easier for the OTF Trader to knock it off on either Direction all right so um a normal profile has a very wide initial balance which means that the opportunity for Trader is very low to make money because most of the trading will happen in that initial balance it'll be very hard to determine which are the turning points in the market so it is typically

a a range bound kind of kind of profile and it's better to stay out stay out of it now see this is a wide initial balance um I think it's of nifty um the initial balance is of 80 points and um most of the trading the rotation happens within the initial balance now as a Trader it's very difficult to trade this Market um the first clue in identifying what the structure is look at the initial balance if you see the initial balance is extremely wide it's better to avoid all right now this depends and hear

this part carefully what Dalton and Peter missed out um is the concept of volatility and beta now for those of you who have been actively participating in our discussions we all have discussed how many times that you know numerous number of times that whenever the vix is between 13 14 12 and the market is in a sleepy mode and the initial balance is wide you better stay out of it but when the Wix is above 1718 and the initial balance is wide you you need to pay attention because later in the day that can be

disturbed you know when a when volatility is high initial balance will be disturbed more often when the uh more often than when the volatility is low all right it's but natural and same goes for beta now let's say the the volatility index is high and the initial balance is wide which stock or which asset would you want to trade you want to trade the asset Which is higher beta for a stock like ITC if it has a wide initial balance and the vix is high what is the probability of um the price breaching the initial

balance it's low when compared to something like JP associate or an SBI or an ICI bank I hope you're getting my point now these are the concepts I'll cover much much much later where I'll integrate Market profile with um conventional technical analysis and um there I'll show some some things which uh which are in my opinion missing out from the literature already there or maybe um it's been covered I'm not aware of it but um uh I think that'll come in in the 10th in the 10th part all right so the next profile that we'll

cover is the normal variation profile now normal variation profile is similar to normal profile the only difference is that initial balance in normal variation profile is smaller than um you know that compared of a normal day normal profile that is um as the profile progresses you know most of the trading happens within the initial balance but during the later stage and especially for those who who are in Indian market when the Europe opens European Market opens then the OTF Trader enter the market and uh Drive the price you know beyond the initial balance okay and

typically on the normal variation day when um where the price closes gives an insight into what is going to happen the next day uh I'll just come back to this point so let us see see we we have a initial balance which is relatively wide out here most of the trading till the hi J um TP up happens within the initial balance then then suddenly the K LM TPO uh this uh uh trades uh beyond the initial balance now what has happened here is that other time frame Trader has entered here and he drove the

prices down okay this is a structure of a day so what happens is till 4 hours price trades within the IB then later in the day OTF Traders enter the market and drive the prices below now this is a normal variation day all right till this point it seems It's a normal day then suddenly they come and they drive the prices down okay now if the price after going down comes back and closes within the initial balance or just just outside it then it does not have that negative uh implication especially for this profile because

it's a negative profile but if it closes well around the you know bottom of the range then it has more bearish impl ations okay the next profile that we're going to study is Trend profile Trend profile is a dream profile for Traders if you catch a trend profile early um you're going to make a lot of money in it and Trend profile is a profile when you know Market just trades in One Direction the other time frame Trader enters and he just drives the prices above or down depending on the nature of the trader they

they they completely control the profile and just shows the the directional confidence they have um in in in textbooks it's written that each TPO interval or each subprofile interval will be higher than the previous one like let's say the a series TPO the low of a series will be higher than b then the B series low will be higher than um you know the the a profile I'll just explain it with example so Trend day what they say is that the low of a is never breached by B and the low of c a low

of B is never breached by C it's a higher high concept you know higher high and higher lows that is what is written in textbook what I'll say is don't be rigid about this rule because there are Trend days which happen when the B profile goes the B sub profile goes below the a subprofile or the C will go below the b or the a but eventually the price is just uh move up all right so be flexible in in in that uh a trend profile is elongated it is not wide that is wide as

in um look at the width of this profile maximum three tpos are there three rows of tpos three three columns or whatever um um whereas on a normal day or normal variation look at how many tpos are there 1 2 3 4 5 6 7 7 in in in one line all right so the profiles on a trend day are relatively very um thin and elongated okay now there are two types of trend profile one is the standard Trend profile which I'm showing which is much thinner and the price just keeps moving in One Direction

without without pausing Etc but um the the second kind of trend profile is the double distribution Trend profile what happens in the double distribution Trend profile is that the initial is small narrow the other time frame Trader enters the market drives the price High um then it rotates again in that in that driven area so you get a a DD kind of structure with a single print in between I'll show you the structure later uh what this shows uh in respect of bullishness the double distribution profile is less bullish than the standard profile standard trend

profile it has it it it forms two balance areas one balance area is when the initial rotation was happening within the initial balance and the second one is when it the initial balance gets Disturbed and again A New Balance area forms okay usually the the two um balance regions are separated by single prints the single prints between the two profiles are extremely important because usually the price does not come and visit that single print if it does then you you need to know that something has changed in the market and you need to review your

trades or your opinion let us look at a double distribution profile okay here it is see what happens The Market opens it rotates first here then the single print happen then it again rotates here so you get two balance regions first balance region and the second balance region and this is the single print all right so look at the initial balance it's it's relatively narrow the gray part that you see is actually the extension of initial balance uh I think it's 50% or 150% right now don't go into those aspects but uh just keep this

in mind that in double distribution you get two balance areas okay so let's say the price closed at M here if if um during the same profile if the price starts to trade within this single print let's it trades here after penetrating these single prints then you should know that something is changed in the market and the likelihood of the pric is rising further increase all right so this is an important clue that comes to the single print the next profile structure that we identify is a non- trend profile and as the name suggest this

is a extremely you know low directional conviction profile it's better for Traders to stay away way um this usually has a narrow initial balance and and as Traders we start to position ourselves for a a trend day or a normal variation day or or profile but nothing happens the price just keeps rotating here and there and um it it usually it's very frustrating it's frustrating on two counts one the price do not move anywhere and second because the initial balance was narrow we start visualizing uh the potential gains that may come our way and when

eventually nothing happens it it becomes it becomes frustrating so this this kind of profile usually develops when the market has run up significantly and it just consolidates pauses then again after two three days it'll start to uh move up all right so what we call is consolidation days so this is so we have an initial balance the market breaches the initial balance and we do expect that it could be a trend day or a normal variation day but nothing happens the price rotates back it forms a value area and just stays there all right so

basically a Trader gains nothing out of it uh the price remains uh in the center there is not much movement typically these days will come when the Wix is low again I'll I'll I'll come back to this aspect later but you have to relate Market profile with volatility otherwise I think a person misses out on most of the things because if you start looking for a non- trend day on a on an U uh phase of the market where the Wix is above 20 then I'm sorry you're going to be you're going to be surprised

more than often whereas non- Trend days will happen more often when the Wix is low and let me give you an example um in in the period between September 2012 and December 2012 if you remember the market was just swirling in a in a zone of 5900 to 6100 and the vix was continuously trending down that is when you were getting a lot of non- trend profile days and and the time for Traders to either participate in day or structure themselves positionally was not ripe it's only when Wick started Rising we started getting more Trader

friendly profile structures all right again I will go in much detail much depth with Wix and profile structures later in uh towards the end the next profile I think this is the last profile let me check yeah the next profile that we study is um the neutral profile now what happens in the neutral profile is that both OTF Traders are present the the other time frame buyer and the other time frame seller um this this day happens when the perception of value for both Traders is more or less same but they never trade with each

other they will always trade with the local um but their perception is you know the area is more or less same uh what happens is the initial balance is neither too wide nor too um narrow and see this is something which will come with practice that for every instrument you need to determine what is the optimum initial balance and that can only come if you back test properly uh in the end I will give out for some um well-known instruments including the Nifty Bank Nifty SBI JP ICF Bank access bank and even for foot SE

Dow now that now that they trade on NC I I will give that so when you look at the initial balance of the of the neutral uh profile then um um what what happens is that it'll it'll either be uh very um what do you call narrow it won't be the narrow it won't be wide um it'll be uh you'll have a feeling that it can be broken cannot be broken that kind of mixed feeling will be there so uh during those periods what you need to do is um look out look out for uh

typical hints which which which give out a message of whether both time frame Traders are present or not and I'll come to that part later where we can determine that by the way I'm just flipping slides because there's a mistake here um the trend profile name that I've written it's for the double distribution Trend profile um here the non- trend profile should not have this trend profile um tag so just ignore that it should just be non- Trend profile and similar for next slides see it should just be neutral profile it should not be Trend

profile here so I'm sorry for that anyway um so uh what happens is um that in a neutral profile um Range extensions happen later in the day now sometimes um the when the price extends through the initial balance it extends on the both side that is where the trader gets confused he starts thinking that let's say a buyer OTF has taken control but immediately Market reverses and a seller OTF uh comes in control and he drives the prices down again this this mostly happens when vix is high this will not happen when Wix is low

because volatility can cause Trad switching sides low volatility rarely does that all right so what happens is if if um let's say this is the profile see it's extended on upwards and it's extended down and and both Traders are present in this um structure so let's say uh the prices extend down and close somewhere towards the low or the higher end that kind of structure is called U neutral profile extreme because the closing happens in the extremes if if both sides get uh range extensions but the profile closes somewhere here then it is called the

neutral profile Center because it's closing in the center of the profile all right again I would just like to repeat just ignore the trend profile tag it's just the neutral profile okay there is a mistake um so so these are the kind of profile structures we have covered and um um it's not that hard to get a um idea of um what kind of structure might come up it is all about a having a Optimum setting for initial balance once you have an Optimum setting for initial balance more or less it's figured out and second

second most important aspect is volatility which I'm going to cover later in detail because right now if I cover volatility it's just going to confuse you so these are the two things that you need to keep in mind from your side what you can do is now that you you have an idea of the profile structure every day that the Market opens after the 1 hour of trade just come and you know you can come and join the Forum discussions and write what kind of structure you think don't worry about being right or wrong uh

even at this stage you know I commit serious mistakes in Market profile and and it happens it's just part and parcel of trading so um and the structure is important for you because now let us go back to your system the breakout system we talk about now let's say we get a Buy on a breakout system okay and you check the profile and you see that the initial balance is extremely narrow immediately that what comes to your mind is this can be disturbed and hence the the the signal bio system is Optimum and you can

go in um aggressively in it okay now let's say you see the structure and the profile structure is initial balance is too wide you immediately come to know that what it can either be a normal day normal profile or a non- trend day um or a non- trend profile so so if you if you categorize riskwise risk and reward wise the most preferable will be a trend profile all right then the normal variation profile and the least preferred would be normal neutral and non- Trend neutral some people argue that it can be good for Traders

but you know it's it's a little bit difficult to catch both sides unless you're an option participant again I will combine Market profile and options later in the tutorials but um that is how you have to identify the normal profile and the non- trend profile are less rewarding and less risky profiles whereas the normal variation Trend and the neutral profiles are more riskier and more rewarding uh rewarding all right so um this is how you can you can get amazing insights uh through Market profile and either you can combine it with the system or use

this as Standalone also um that is completely fine now in the in the next tutorial I think we going to talk about uh the framework and how the structure only small part uh forms a small part in in the market profile and and mostly it is about you know visualization and um gaining experience and getting better at it um one thing that I want to tell you is that um anything that you do in trading is not going to come to you in the next 15 days even even in the next 10 days if you

watch these videos 50 times a day you won't become a good Market profile Trader because it's about seeing how things happen and that develops only in time but again my main emphasis is um either you can join me in the in the in the chat rooms or uh webinars where I'll conduct live sessions or as usual we you can join us at forums we have a good healthy group of people who who discuss the concepts and uh catch hold of someone who knows Market profile well they can they can tremendously um enhance the speed of

your learning curve and um and and that way you can um become a a better Trader so anyway still till next uh time see you guys bye