Class 2 Notes
Steering Of Market Profile - Initial Balance
Initial Balance (IB) in Market Profile
1. Definition:
○ The Initial Balance (IB) is the range of prices established during the first two
time periods (usually the first hour) of the trading session.
2. Importance:
○ The IB is considered a crucial reference point because it sets the tone for the
rest of the trading day.
○ It helps traders understand the initial market sentiment and can indicate
potential areas of support and resistance.
3. Comparison in the Image:
○ Nifty 30-min Candlestick Chart: This shows the price movement of the Nifty
index in 30-minute intervals. In the image, the initial price movement for the
first hour is highlighted.
○ Market Profile Chart: This shows the distribution of trading activity at various
price levels. The initial balance is marked with the letters 'A' and 'B', indicating
the first two time periods.
How IB Steers Market Profile:
● Trend Identification: If the price moves strongly beyond the IB, it might indicate a
trending day where prices could continue in that direction.
● Range-bound Day: If prices remain within the IB, it suggests a range-bound day with
less volatility.
● Breakouts: Watching how prices behave around the IB can help identify potential
breakouts or breakdowns.
Types Of Treaders
Other Time Frame (OTF) Traders:
1. Definition:
○ OTF traders are large market participants like institutional investors, mutual
funds, or hedge funds.
○ They make decisions based on longer time frames and larger trends, often
holding positions for days, weeks, or even months.
2. Characteristics:
○ Large Volume: They trade in large quantities, which can significantly impact
the market.
○ Long-Term Focus: Their decisions are based on broader market trends
rather than daily price fluctuations.
○ Market Influence: Their large trades can cause noticeable movements in
market prices.
3. Behavior:
○ OTF traders often set the overall market direction due to the size of their
trades.
○ They use complex analysis and detailed research to inform their trading
strategies.
Retail Traders:
1. Definition:
○ Retail traders are individual investors who buy and sell securities for their
personal accounts.
○ They typically trade in smaller quantities compared to OTF traders.
2. Characteristics:
○ Small Volume: Their trades are smaller and have less impact on the market.
○ Short-Term Focus: Many retail traders focus on short-term price movements
and may hold positions for a few hours, days, or weeks.
○ Individual Strategies: They often use simpler analysis methods and may rely
on news, tips, or basic technical analysis.
3. Behaviour:
○ Retail traders are more likely to be influenced by market news, emotions, and
short-term trends.
○ They typically have less market power compared to OTF traders and often
react to the market movements caused by larger players.
Poor lows and Poor Highs
Poor Lows
Definition:
● A "Poor Low" occurs when the lower end of the profile does not have a well-defined
and tapered appearance. This suggests that the market has not properly auctioned
lower prices, indicating weak support.
Characteristics:
● Visual: The letters indicating price activity stack horizontally without tapering off.
● Implication: A poor low often suggests that the market might revisit this area in the
future to test lower prices and establish a more secure low.
Example in Image:
● On the left side of the image, the lower portion marked as "Poor Low" shows the
price activity ending abruptly without tapering, indicated by the red arrow and the
letters G and H stacked horizontally.
Poor Highs
Definition:
● A "Poor High" occurs when the upper end of the profile does not have a well-defined
and tapered appearance. This indicates that the market has not properly auctioned
higher prices, suggesting weak resistance.
Characteristics:
● Visual: The letters indicating price activity stack horizontally without tapering off.
● Implication: A poor high suggests that the market might revisit this area in the future
to test higher prices and establish a more secure high.
Example in Image:
● On the right side of the image, the upper portion marked as "Poor High" shows the
price activity ending abruptly without tapering, indicated by the letters L and M
stacked horizontally.
Range Extension
Positive Range Extension:
● Definition: Occurs when the market extends its range on the upside.
● Implication: Indicates bullish sentiment, suggesting that buyers are willing to push
prices higher.
● Example in Image: The top right part of the image shows an example where the
range has extended upwards, marked as "Positive."
Negative Range Extension:
● Definition: Occurs when the market extends its range on the downside.
● Implication: Indicates bearish sentiment, suggesting that sellers are willing to push
prices lower.
● Example in Image: The bottom right part of the image shows an example where the
range has extended downwards, marked as "Negative."
What Are Single Prints?
Single prints in market profile analysis represent a unique segment on a profile chart where
trading activity at certain price levels occurred very briefly, typically during strong, directional
moves. These single prints are depicted as individual letters or symbols that do not have
adjacent prints at the same price levels across different time periods or segments within the
session.
Understanding Single Prints in the Picture:
1. Visual Identification:
○ In the provided image, particularly on the left side, you see a column of single
prints highlighted within a red box. These are the levels where the price
quickly moved through, not allowing for multiple trading periods to register
their activity at those price levels. The presence of isolated letters like 'K', 'P',
'X' indicates these swift movements.
2. Implications of Single Prints:
○ Directional Movement: Single prints are often indicative of strong, directional
moves either upwards or downwards. This occurs because the market reacts
vigorously to new information or market drivers, pushing prices rapidly without
much opposition.
○ Potential Revisit Areas: In trading, these levels are watched closely in future
sessions as areas where the market may test again. This is because the rapid
price move might leave behind what some traders consider an imbalance or
inefficiency that the market may attempt to 'repair' or retest.
3. Trading Significance:
○ Support/Resistance: These areas can act as temporary support or
resistance in future sessions because they represent price points that were
not thoroughly tested during the initial move.
○ Breakout/Breakdown Zones: If the price revisits these zones and breaks
through, it might indicate a continuation of the initial strong trend. Conversely,
if the price stalls or reverses at these levels, it might signify the end of the
prevailing move or a significant counter-move.
Practical Usage:
Traders often monitor these single print areas for potential trading opportunities, gauging
market sentiment and readiness to continue or reverse the initial strong move. They provide
clues about where significant buying or selling occurred, serving as focal points for future
price action strategies.
In summary, single prints on a market profile chart are important because they highlight
areas of intense market activity that are likely to be significant in future trading sessions,
either as continuation points or as reversal zones depending on how the market approaches
these levels again.
Types Of Days
The first 4 types of day namely normal, normal variation, trend, and double distribution days
are used in present.
Non trending and neutral days are used for future.
IB And Its Power
What is Initial Balance (IB)?
● Initial Balance (IB) is a term used in market profile analysis that refers to the price
range established during the first hour of trading. It is a crucial period as it sets the
tone for the rest of the trading session.
● Basically take the high and low of first 2 sticks and take their range to find IB.
IB Categories Based on Range:
1. Narrow IB:
○ Range: Less than 30%.
○ Implication: A narrow IB suggests low volatility and a potentially quiet
market. It often indicates that the market may experience a breakout later in
the session as it attempts to find direction.
2. Moderate IB:
○ Range: Between 30% to 60%.
○ Implication: A moderate IB represents a balanced market with moderate
volatility. It can indicate a relatively stable trading day with potential for
measured moves.
3. Wide IB:
○ Range: More than 60%.
○ Implication: A wide IB suggests high volatility and significant market activity
during the initial trading period. This can indicate that the market has already
made substantial moves and may continue to be volatile.
Normal Day
IB is Wide:
● On a normal day, the Initial Balance (IB) is wide. This means that there has been
significant price movement during the first hour of trading, indicating high volatility.
Trade According to Trend at IB Tops/Bottoms:
● Traders should observe the trend and place trades at the top or bottom of the IB. If
the market is trending upwards, you might consider buying at the bottom of the IB. If
it’s trending downwards, selling at the top of the IB might be a good strategy.
Chances of Price Rotation:
● There is a likelihood of price rotation on a normal day. This means that the price may
move back and forth within a certain range, rather than trending strongly in one
direction.
Failed Auction Trades:
● A failed auction occurs when the price tries to move beyond a certain level but gets
rejected and moves back within the previous range. Identifying these points can
provide trading opportunities as the market reverses direction.
Low Risk High Reward Trades:
● On normal days, there are opportunities for trades that have low risk but high
potential rewards. This usually involves placing trades at levels where the price is
likely to reverse, limiting potential losses while aiming for significant gains.
5th/6th Candle Trades:
● This refers to observing the 5th and 6th candles in a time frame (like 5-minute or 15-
minute charts) for potential trade setups. These candles often provide signals for
price direction and can be used to enter trades with favorable risk-reward ratios.
Normal Variation Day
IB is Moderate - The Initial Balance (IB), which is the price range of the first hour of trading,
is moderate in size. This means the price has moved within a moderate range during the
opening hour.
Trade IB Breakout- On a normal variation day, you look for opportunities to trade when the
price breaks out of the IB range. This breakout signals that the price might continue in the
direction of the breakout.
Range Extension Happens- After the IB breakout, the price is expected to extend its range
beyond the initial balance. This range extension shows that the market is moving strongly in
a particular direction.
Range Extension Towards Trend- The range extension typically happens in the direction
of the prevailing trend. If the market is trending up, the extension is likely to be upwards, and
if the market is trending down, the extension is likely to be downwards.
Risk is Below/Above RE Bar- Your risk management should be set below the range
extension (RE) bar for long trades or above the RE bar for short trades. This means placing
your stop-loss orders just beyond the range extension to protect against adverse price
movements.
Targets are References- Set your profit targets based on reference points such as previous
highs, lows, or other significant price levels. These references help in planning where to exit
trades for maximizing profit.
Extension is 1X of IB- The expected extension on a normal variation day is typically around
1 times the IB. For example, if the IB is 20 points, the range extension could be expected to
be another 20 points in the direction of the breakout.
