Something to pay attention to today. This is my composite profile overlayed on daily bars. The profile is built from the 2007 swing high through the 2009 swing low to present. Note the low volume “notch” right at the overnight low today. This is a classic multi-period rejection of a range of prices with relative volume much lower than the major acceptance area surrounding it. If it does break through to the short side, expect a relatively fast market to the next high volume area below which is well estabished for value by buyers and sellers…

This image is pretty self explanatory. It shows the trading detail in September 2008 during the huge selloff. Obviously, there were a lot of prices in the 1180’s virtually “skipped over”. The market will have a difficult time understanding those prices and once we get into the tail enough, we can expect a fast market up to the next known area of previous balance. The single prints start at 79 and the no prints start at 81. As I write this I see that we traded right up to the no-print zone overnight and rejected. 81 will be an important area to watch today, or whenever it gets re-tested. If we trade above it by much we are likely to move to 84, 86, or even 88 very quickly. Volume at price in this image is presented with 5 minute granularity…

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.

As RG mentioned in his post,  selling the highs at strong resistance can be a high probability trade. All other things being equal, of course. On this daily chart, you can clearly see that there is resistance from mid-January around 1148:

Around 11:35am, the opportunity presented itself.  Once price failed to reach the highs after bouncing off the 1148 resistance, a good short entry was made for a 4.5 point target.  With risk at only 4 ticks, this trade has a great risk to reward ratio:

The chart below shows how analysis of bid and ask volume at the entry area.  The chart shows order flow and helps see the potential market turn.