BarroMetrics Views: Market Profile Principles
I am sometimes asked why I give Market Profile such a rap since I use ideas from the spectrum of technical analysis. The answer is Market Profile was the first discipline that explained how markets work. While I clearly could not Blog the entire gamut of Profile history, I can give you a flavour of its approach using last night’s price action in the ES (E-mini Futures).
Two Profiles dictums were relevant for last night:
- Generally markets move from directional moves to sideways structures before changing direction. Consequently, if you are looking to sell a market as it heads higher, wait for the market to exhibit a sideways movement before selling.
- Markets change from up to down only when the last buyer has bought.
Prior to last night, I was looking to sell the 1090 to 1093 area with stops above 1095. Figure 1 shows that the zone I was targeting was the 33.33% retracement level.
Figure 1 shows that the ES ploughed through the 1090 to 1093 resistance in the 81-minute; there was a slight pause in the 15-minute just above 1093 but selling took place there.
Under those conditions, I would have had little interest in selling. Under the right context, I would have considered buying but since the ES trend is down in my trader’s timeframe, I would have had little interest in buying.
Note that at the 50% level, the ES started to stall.
This pause is more clearly seen on the 15-minute chart (my entry time frame). You see that at “A”, the ES has a strong bar up and then stalls, forming 6 inside bars with the bar at : “A”. For me that satisfied the Market Profile dictum we needed to see rotation before taking a sell against a strong move up. I call this rotation a ’setup’ pattern - the pattern sets up the trade: it is saying the last buyer has probably bought.
However, I don’t enter on the setup. To enter I need to see a bearish-conviction bar. We saw this bar at ‘B’ and I would have taken a trade at around 1093.0
In this trade we saw two Profile ideas in action. We also saw the way Pete recommends trading a market. Use historical info to analyse and present tense info to enter.
NB: I am on hols - the above are paper trades
FIGURE 1 81-Minute ES
FIGURE 2 15-Minute ES
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