Mar 232010

Just a reminder about something coming up of great importance for those not yet keeping track of volume traded at price in a macro sense. Attached is a volume profile chart built from all trading between the 2007 highs and the 2008 lows through to present day coupled with daily bars. Please note that not quite all the bars are shown on screen, but the profile does include everything from swing to swing. 1176-1180 is basically the low volume center of the massive October 2008 sell-off in the S&P. Typically, just as in intraday trading at key highs/lows or other support/resistance areas, the whole market WILL fight hardest at levels comprised of thin volume profiles like these. Pros will all tell you the  the same thing, and that is we want to be trading where the liquidity is and where price is most hotly contested. Low and high volume areas are where this is happening, with the low volume areas being favored of the two for most typical initial rejection. Remember, trading is only a series of auctions and prices MUST constantly move. But don’t get all hung up on trying to make a system out of auction theory by using Market Profile. There are just as many traps to that as any other “indicator”. If you try to systematize MP you will have no better success with it than anything else you have tried and failed at. Above all DON’T have a rigid system, and if you do use profile tools, focus on VOLUME. Time based profiles are antiquated and mostly useless in modern markets. The TPO system was very valuable when we used to run tickets on the floor. We didn’t HAVE volume numbers until the end of day so time based information was the best that could be had intraday. Volume is FAR superior and while time based profiles are not terrible there is no need to use them is you have actual volume information, other than to look for congruence between volume and time which makes support/resistance areas that much more powerful. Just remember when you are considering any trade or managing an existing position that price treats areas previously heavily traded as comfort zones. High volume areas act like magnets to price. In any case, watch what happens(nd) at this key level and expect rejection first. If it does get through, expect a faster market on the backside trying to make its way up to the next important balance area between 1200 and 1220 – and eventually on to 1275 or so.

 Posted by at 5:03 pm

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