iCharts Discussions

[123skanda]

Markets have 2 kinds of actor – the short term (locals
or ‘day frame’ participants) and long term (other
frame) participants. To consistently make money, it is
usually wisest to align with the other-frame
buyers/sellers, whoever is actually winning the battle
on a particular day. On a day when no strong otherframe
conviction is present, price is likely to rotate up
and down in an essentially random support/resistance
mode. The trick, essentially, is to be able to
determine who (if anyone) is in control, and when that
control is faltering or even reversing.

Types of Day
There are 6 types of day identified by using the
Market Profiling technique.
(1) Normal Day
Not as common as the name might suggest. Typified
By early entry of other-frame buyers or sellers
creating a large initial price range. The action then
wanders back and forward during the day in standard
auction fashion as buyers and sellers struggle to get
the upper hand.


(2) Normal Variation on Normal Day
Less extreme initial price action, as if the other-frame
buyers/sellers are waiting and watching in order to
build their conviction. Then a more dramatic move
followed by standard 2 way auctioning to close.


(3) Trend Day
One side of the other-frame is in control right from the
open, and for the whole day. A succession of higher
highs/lower lows forms. This day type shows a high
level of directional confidence throughout the day.
The initial range is often narrow.



(4) Double Distribution Trend Day
This is a variation on type (3). Looks similar to a type
2, except more time is spend wandering in the first
range while the other-frame buyers/sellers build up
conviction to make the market move. Something
‘changes’ mid session to cause a change in
conviction.


(5) Non Trend Day
Often looks like a Trend day at start (narrow range).
Then meanders with no conviction in a range bound
area. Often seen before a big news announcement as
the market waits to see whether it should jump up or
down.


(6) Neutral Day
Like a non-trend day, except other-frame buyers and
sellers are active, they just happen to agree on value
(broadly speaking). Day type is characterized by
range extension beyond the initial balance during the
session as the two sides test the edges of each
other’s tolerances. Has 2 variations – “Neutral Center”
in which price closes near the open (no resolution
between buyers/sellers), and “Neutral Extreme”, one
side wins, closing either up at the top of the range, or
down at the bottom.

[ILLUSTRATIONS ATTACHED FOR THE ABOVE]
_______________________________________________________
Using the Open to estimate the
strength of Market Conviction
The Open often tips the Market’s hand as to what sort
of day this is going to be (other things remaining
equal). Four types of Open can usually be detected in
any Market:-

(1) Drive
This is the strongest and most definite type of Open.
Usually caused by other-frame buyers/sellers
reaching strong conviction before the market opens.
From the very start the market will auction
aggressively in one direction and is unlikely to come
back and test the opening range at any point. The
initial large move happens in the first time period, i.e.
the first half hour, but other large moves may happen
later. Generally indicates a Type 3 Trend Day or a
Type 2 Normal Variation Day. This Open type is
uncommon.


(2) Test Drive
This Open starts in a similar way to the Drive Open,
but stops and reverses. The market is taken lower to
go higher or vice versa. The initial large move and
reverse back past the Open happens in the first time
period, i.e. the first half hour. This is caused by otherframe
buyers/sellers wanting to test a previous
support/resistance to ensure there is no remaining
business there – when this has been confirmed by
price rejection, it will roar off the other way. The
extreme that has been tested has slightly less chance
of holding than the extreme set at the start of a Drive
Open, but is still strong. Generally indicates a Type 3
Trend Day or a Type 2 Normal Variation Day,
obviously trending in the OPPOSITE direction to the
Drive Day type. This Open type is uncommon.


(3) Rejection – Reverse
Like a test drive, but the initial large move and
subsequent reversal take longer to develop (i.e. more
than the first half hour). The initial extreme is only
likely to hold during the day about half the time. The
participants are less convinced than in Drive or Test
Drive Opens, and the counter buyers/sellers
effectively enter ‘late’ to force price to reverse.
Indicates a two-sided trading day, i.e. low probability
of a trend day, and that the initial extreme may be retested.
Generally indicates a Type 1 Normal Day or a
Type 2 Normal Variation Day.


(4) Auction
This Open falls into 2 subtypes, although both look
like a market with no firm conviction in either direction.
In the first subtype, if the market opens within the
Value Area of the previous day, a non-convictional
day is likely to develop, as market sentiment remains
unchanged from the last session and other-frame
buyers/sellers are not strongly present. Any extremes
established early have a LOW probability of holding.
Usually a Type 1 Normal Day, Type 4 Non Trend
Day or Type 5 Neutral Day will develop. If on the
other hand the Open is “out of balance” (i.e. outside
the previous day’s Value Area) then a “big Day” is
likely. Although it may appear to be wandering
randomly, the mere fact that the Open was OUTSIDE
yesterday’s Value Are suggests the activity of strongly
convictional other-frame buyers/sellers. Usually a
Type 4 Double Distribution Day will develop.

________________________________________________________

Relationship of Open to
Yesterday’s Range [ILUSTRATIONS ATTACHED]
The Open in relation to yesterday’s range can give
valuable clues as to today’s expected range. A Market
that opens within the Value Range is generally in
balance, and awaiting new information.

The Market can open in one of 3 ways, each of which
can be accepted or rejected by the Market.
(1) Within yesterday’s Value Area
If the price auction spends more than 1 time period
within this area, it tends to indicate an acceptance of
price, i.e. balance. Range will most likely be similar to
yesterdays, with one extreme forming the end to
measure from. As long as the extreme holds, the
range to the other end will probably be similar in size
to yesterday.
If the Open is rejected, i.e. it moves in the first time
period beyond yesterday’s entire range, there is no
way of telling how far it may go in the initiative
direction.

(2) Outside the Value Area, but within
Yesterday’s Range
Not quite as balanced as #1, but still relatively
balanced. Likely to produce a range similar to a #1,
but offset either to the long or short side.
As in #1, if the Open is rejected, i.e. it moves in the
first time period beyond yesterday’s entire range,
there is no way of telling how far it may go in the
initiative direction.

(3) Open Outside of Range
Conditions have changed and the Market is out of
balance. Other-frame buyers/sellers can often make
the Market move substantial distances in short times
in the direction of the initial break out WITHIN 1 TIME
PERIOD. Alternatively, price may auction around the
new level (typically for more than 1 time period), and
has unlimited potential in EITHER direction. A trend
day (3) is likely to develop from this.
If this Open is rejected, and price moves back into
yesterday’s range within the first time period, there is
unlimited potential in the OPPOSITE direction to the
initial breakout.

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