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Identifying balance areas


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Identifying balance areas

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  #1 (permalink)
Sydney, N.S.W., Australia
 
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Hi,

I was just wondering if someone could please tell me if i'm heading in the right direction.

How do you identify "balance areas" on the day time frame? Am I right in the chart below?
It's from the ES yesterday. We one-time frame up for four 30 minute periods and then hit a stopping point, pulling back.
We form an area where two sided trade occurs.

So, the scenarios now (ignoring long-term context and just thinking on the day timeframe.....)
1) Initiative buyers (on the day time frame) take control, we breakout from 2190.75, pullback and head higher
2) We breakout from 2190.75, fail to build volume and acceptance, and responsive sellers take us back to the VPOC of intraday balance and possibly to the balance lows
3) Initiative sellers (on the day time frame) take control, we breakdown from 2188.75, pullback and then head down to the VPOC of the up move and possibly the low of day (unlikely given the bullish sentiment)
3) We breakdown from 2188.75, fail to build volume and acceptance, and head back to the intraday balance VPOC and possibly to the balance highs
4) We continue to rotate and build volume + acceptance in this tight range for the rest of the day.

Image attached below.

Thank-you for your help. Times are in EST. RTH only.

Tom

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  #3 (permalink)
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thomasblake View Post
Hi,

I was just wondering if someone could please tell me if i'm heading in the right direction.

How do you identify "balance areas" on the day time frame? Am I right in the chart below?
It's from the ES yesterday. We one-time frame up for four 30 minute periods and then hit a stopping point, pulling back.
We form an area where two sided trade occurs.

So, the scenarios now (ignoring long-term context and just thinking on the day timeframe.....)
1) Initiative buyers (on the day time frame) take control, we breakout from 2190.75, pullback and head higher
2) We breakout from 2190.75, fail to build volume and acceptance, and responsive sellers take us back to the VPOC of intraday balance and possibly to the balance lows
3) Initiative sellers (on the day time frame) take control, we breakdown from 2188.75, pullback and then head down to the VPOC of the up move and possibly the low of day (unlikely given the bullish sentiment)
3) We breakdown from 2188.75, fail to build volume and acceptance, and head back to the intraday balance VPOC and possibly to the balance highs
4) We continue to rotate and build volume + acceptance in this tight range for the rest of the day.

Image attached below.

Thank-you for your help. Times are in EST. RTH only.

Tom

Concerning your question: Yes, "balance areas" are shown by MP / VP TPO peaks - like e.g. PoCs.
From that you can derive standard scenarios (which you did).

Concerning the use of "VPoC" there have been x books some years ago. If you do your own
backtests you will find why the "V" is basically meaningless and why most of these authors
have been sinking into obscurity accordingly.

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  #4 (permalink)
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choke35 View Post
Concerning the use of "VPoC" there have been x books some years ago. If you do your ownbacktests you will find why the "V" is basically meaningless and why most of these authors
have been sinking into obscurity accordingly.

If I am understanding you correctly, you are suggesting that the VPOC is meaningless? I'm no expert, but in theory, with volume profile, VPOC is one of your most important points. It often acts as a reference point should there be a confirmed reversion much like the mid point and the VWAP.

Like I said, I'm no expert so If I'm wrong in my assumptions, please correct me and if at all possible direct me to some useful material regarding the matter. Thanks in advance!

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awaddle View Post
If I am understanding you correctly, you are suggesting that the VPOC is meaningless? I'm no expert, but in theory, with volume profile, VPOC is one of your most important points. It often acts as a reference point should there be a confirmed reversion much like the mid point and the VWAP.

Like I said, I'm no expert so If I'm wrong in my assumptions, please correct me and if at all possible direct me to some useful material regarding the matter. Thanks in advance!

It always depends on your trading system. But I strongly suggest not to blindly believe the
tons of BS that have been written about POCs, volume POCs, virgin POCs and the like.

The prove is in your numbers - i.e. systematic backtesting will show you if your system (if
you have one) has a meaningful edge using xPOCs. In all other cases a POC is what it is:
One line among many others that shows where a lot of business has happened.
(But as I understand you, you are looking for a predictive egde, not for late indications of
past events.)

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  #6 (permalink)
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choke35 View Post
It always depends on your trading system. But I strongly suggest not to blindly believe the
tons of BS that have been written about POCs, volume POCs, virgin POCs and the like.

The prove is in your numbers - i.e. systematic backtesting will show you if your system (if
you have one) has a meaningful edge using xPOCs. In all other cases a POC is what it is:
One line among many others that shows where a lot of business has happened.
(But as I understand you, you are looking for a predictive egde, not for late indications of
past events.)

I have certain systems that I run on CL and NQ but neither have anything to do with auction market theory in anyway. For the ES, I use a discretionary approach along side some statistical studies that I have modeled in excel. Maybe it's because of my view of systematic trading and the way in which I use it on other products, but I simply don't see how one could approach volume and market profile in a 100% systematic way. I feel as though auction market theory as a whole is intrinsically discretionary. I like to think it is an art.

At any rate, I appreciate the input. But my use of volume profile seems to be different than yours as I use it to identify levels of importance and once I see the price approaching those levels, I watch the DOM and let it tell me what to do using my own discretion and intuition.

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  #7 (permalink)
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awaddle View Post
... as I use it to identify levels of importance and once I see the price approaching those levels ...

That's exactly what I meant with "one line among many others". From a theoretical point of view this special kind of
"discretionary" trading is covered in depth by .
But any approach is ok if it works for you - even reading tea leaves

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  #8 (permalink)
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choke35 View Post
That's exactly what I meant with "one line among many others". From a theoretical point of view this special kind of
"discretionary" trading is covered in depth by .
But any approach is ok if it works for you - even reading tea leaves

I read the thread and this is a thought that I have pondered over before. However, I don't see how that is the case given what I am talking about. The reason I intervened here was because you seemed to be dismissing the significance of the VPOC all together when I have seen first hand day after day, generally on a choppy sideways kind of day rather than a trend day, that there is significant, profitable price action that occurs at this level; exploitable, in my case, through signals given on the DOM.

I apologize for the poor spelling and the massive run-on sentence there. lol

And tea leaf reading is an important part of trading!! It's called homework!!

(lol Just kidding of course.)

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thomasblake View Post
How do you identify "balance areas" on the day time frame? Am I right in the chart below?

Hi Tom, Balance on a daily time frame would encompass a number of days aggregated into a single profile. Its the correct profiling method for this market, imo, but doesn't look like you're deploying it correctly. So, I'm presuming you're preparing tomorrow's strategy for an intraday entry - based on today's profile. If I'm reading the chart correctly, you've plotted a profile for the morning session and another one for the rest of the day and you've identified the various POC, VAH/L for each. Including your mid points, you have 8 inflection points to work with. That's too much info for me. Consider using a simpler tactic: use a single profile for the day, abandon the mid, VAH/L and keep the POC. Add YH/L and any historical S/R prices such as the channel line resistance (anchored to the 4/20 and 7/20 session H) that was testing as you took the pic. That would provide you 4 prices of interest to work with in this example and maybe 5 or 6 if today's trade was within a historical price range. Its a smaller list and therefore better to develop experience and its more diverse because it includes historical prices and at least 2 beyond yesterday's value area. You are unnecessarily restricting your perspective to the least interesting range - tight and inside yesterday's range.

I wouldn't consider a POC to be virgin until at least one new POC develops before the 1st one was tested, so the VPOC's efficacy is higher in trending markets. I pay less heed to a single day's profile in the context of a multi-day flat range and would go to an aggregate of several days. Consider adding price ranges and measured moves. Look for trades at the edges to revert back to the larger aggregate POC. When prices start trending again, then switch back to intraday profiles.

Or, continue to develop the intraday profile strategy, but switch to a product that shows some 2-sided trending price action.

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one clue i use if the market prints 3 tpo wide or more ,,that is a clue it is starting to balance and a rotational day is what i am looking to trade. if you have a small range IB it is in fact balancing do not fade a brake out of the IB go with the brake out, if you know how to ID the trend you can use a 30min volume profile and take a pull back to the high volume node with a stop under the bar. but be careful with the stop. even if you have strong trend one time framing most of the day. it likes to one tick a 30 min. bar... looking for the stops of new market profile traders...put it 3 ticks under the bar on the ES

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