Market Profile: Why are the first TPOs so important?
First of all I hope this is the right place to post the question, I couldn't find a better location.
My question is regarding market profile. On every paper I read or even on Dalton book (Mind over Market) it is almost taken from granted that the first TPOs (A,B) are the most important to understand how the market will evolve that given day. Based on that then you can apply different strategies depending if the market is in balance or out of balance in comparison with the previous day.
My question is, why should we assume that the initiative/responsive buyers/sellers will act on the open of the market and not during the day? Why for example MP defines a trend day when there is a big tail during the first TPOs of the day, why can't we have that tail towards the end of the day in which case probably the opening would be irrelevant?
I am just trying to understand the logic behind what I am learning please don't take this a critic to MP on the contrary I really want to understand it better.
Alright, so back in the day when the MP concept was first thought up, futures didn't trade overnight, so people couldn't adjust positions until the market opened again, sort of like a dam opening an volume flooding in. Lots of people adjust positions on new information.
Today, this overnight risk doesnt exist in the same way it used to, but the lion share of volume and liquidity still cluster around the open, making it the most efficient time for larger participants to trade in the market without adversely effecting their own trades. The idea seems to be that if that is where the largest participants are forced to participate, that is were the information is.
"If I agreed with you, we'd both be wrong."
The following 2 users say Thank You to addchild for this post:
So basically what goes on in the market "mind" is:
Adjust / See what happens / Readjust
Thanks, I think now I understand the idea behind the importance of the opening TPOs. I am not exactly sure I fully understand the logic behind why the market behaves so ordered in the way positions are taken but I guess it will clear up as I keep learning.