Market Profile (TPO Chart) Trading

Tools Used:

1. TPO (Time, Price, Opportunity) Chart or commonly referred to as Market Profile

Purpose: Market profile provides an overall market view with key levels such as overnight high/low, yesterdays range high/low, POC (points of control) and a general sense of the day type which is setting up as the session progresses

2. Structure chart

Purpose: Identifies the structural expectation of highs and lows as the market auctions through the day

3. Footprint chart

Purpose: Provides the interaction between buyers and sellers. An evaluation of delta (bid ask) and cumulative delta is used. The footprint delta bar is used for entries.

4. No indicators except ATR, key reference lines, rectangles and fibs

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Market: Futures – Equity Index Futures (ES, NQ, YM, RTY), FX Futures (6E - EUR/USD, 6J - JPY/USD)

Regular Trading Hours (Cash Market): 9:30 - 16:00 EST (All), 20:00 - 22:00 EST (6J)

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Common Terms Used in the Journal

Balance = A market state where neither buyers nor sellers have control and price rotates within a defined trading range

Continuous Two-Way Auction Process = All financial markets facilitate trade (or doing business) through an auction process of bids and offers to buy or sell a financial instrument.

Cumulative Delta = The sum of all the individual bar delta's throughout a trading session or day

Delta (Bar) = Difference between buyers and sellers who place market orders (hit the bid or offer) within a candlestick or rotation

Excess = Marks the end of an upside or downside auction with a buying or selling tail of single TPO prints.

Initial Balance = An initial trading range in US trading markets which is in 60 minutes in length. This is at the discretion of the trader based on the market.

Mechanical Levels = Specific levels on a chart which shorter-term, under leveraged traders look for entries and targets.

One Time Framing = Trading periods that are making continuous highs or lows.

Open Interest = The total number of futures contracts held by market participants at the end of the trading day. It is used as an indicator to determine market sentiment and the strength behind price trends. Unlike the total issued shares of a company, which typically remain constant, the number of outstanding futures contracts varies from day to day.

Opening Range = The first 1-minute trading range

Other Timeframe Participants = Larger, institutional participants in the market.

Overnight Inventory = From the overnight session, it is the price movement from the settlement (or closing) price of the financial instrument. If the price was above the settlement price, the inventory is considered long and vice versa for short.

POC (point of control) = Highest number of TPO's printed at a single price level and represents the fairest price of the day (or where the most business was transacted)

Poor/Weak Lows & Highs = From the TPO chart, these are the highs and lows which occur in two different periods which are even (poor) or 1 TPO different (weak).

Short Term Traders = Shorter-term (daytime) traders who are generally undercapitalized and exit positions by end of day.

Single Prints = This is a single row to TPO's which are printed and separate two distribution areas

Settlement = CME end of day closing price for the RTH

Spikes = End-of-day price movements, which create an obvious spike and signal an incomplete auction.

Value & Value Area = Is approximately 70% of the TPO's traded in a trading day

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6E (EUR/USD) Preparation

For the top-down analysis below is our chart. The monthly has started to one-time frame, but remains in overall balance as long as current levels can hold. Should one-time framing continue on the daily balance on the monthly will be broken this week. The weekly chart has an outside, engulfing, bearish bar, however, it is still in balance but the same scenario as the monthly. The daily chart is one-time framing and approaching past lows at the 1.1746-1.1753 level.


On the TPO chart, key levels are:

Settlement Price = 1.17655
Last weeks low = 1.1762 (purple line - put in on Friday)
Last weeks high = 1.1909 (purple line - on the daily chart)
Poor low (which was last weeks low) - 1.1762 (red line)
Poor high (high from Friday's session) - 1.1844 (red line)
Single prints of the B period - (green rectangle)


We open at an interesting level to start the week. We added 12,000 in open interest on Friday's strong move down, which indicates new business money coming short into the market. The question - is there enough energy to sustain a break and continue lower? To do that, we are going to need more new shorts coming in on Monday. A couple of scenarios I am looking at:

Sunday evening the energy continues and we break previous lows but are unable to sustain lower with new business. This may break Sunday, but on Monday in Europe, it recovers back into last weeks range.

The energy remains and it breaks and does not hold. We would need to see this in Europe and US markets to confirm acceptance of price below the lows.

Sunday evening and Monday produce a counter auction to recover without breaking lows. In this case, I will be looking at key areas above (above value high - purple box or TPO single prints) for an entry short. If it starts to move into the single prints odds are strong it will re-visit the poor high at the A, B periods from Friday early next week.

Very Nice and Clean. Congrats!
Is it the Daily Evualtion Market Chart an Excel Template or another technology is used?, will you share it?
Thank you for this post anyway.

First trade on 6E this week. Yesterday I stayed out of the market as it was bouncing around the 1.1746 / 1.1762 area and not sure if it wanted to recover or were we going to break. Today, the clear direction was present with two items. First, on yesterday's trade, we ended up down 17 pips and open interest (more money coming into the market) with an increase of 4,140 contracts. Second, the overnight clearly broke 1.1746 and the first hour of trade could not close back to the settlement price of 1.1742.

For the trade, the C period broke the initial balance and corrected back up into the range, however well below the B period high, so 6E is now one-time framing. With the market direction info above, plus we have a good amount of range to go for the downside move, entered at the open of the D period looking for 6E to continue to the downside this morning. A minimum target is 1:2 RR - I will exit if the C period high is taken out by 2 TPO's and continue in the trade until 2 sided trading begins and we stop 1 time framing lower.



Exit

We started to get a push down with D and E periods making lower lows but we did not have the momentum in the DOM. The market rotated back up and in the E period, we stopped 1-time framing. The POC began building wider and the day turned into a rotational/balanced day. Exited with a small loss and this will be on the radar for tomorrow and perhaps more energy to the downside below 1.1746. We do have a poor low at 1.1717 which is likely to be revisited.

No problem to share it and it is an excel file. I have added it to post #1.

One trade on the equity futures today on NQ. During the first hour the equities sold off and in particular, the NQ over-extended the C period with TPO prints. D period continued and generated a lower low, but the momentum was falling off and D pushed back up towards the top of the period. Many times when TPO's are over-extended, there is a small risk trade to potentially fill them in (or partially) for a nice trade.

Entry on this one, once the D period high was taken out and we only had a 4 TPO push down in E, this was a small risk to take for E to begin filling in the C period. Two outcomes here are it moves all the way back to the break of the initial balance (or high of C) or it move us partially, then begins to rotate and balance around this new distribution area. With the break of E period, I felt the odds for this continuing for a trend day were very low.


Exit

For this trade, since it was counter-trend to the day, I wanted to be quick to exit as it approved the 15090 area. After a stall at about 15084 took the trade off the table anticipating a rotation back down.

Three trades yesterday - CL and NQ. I stayed out of FX futures until the CPI printed and with the strong move at 830, I sat tight to look for entries a little later that did not materialize. However, on CL, again waited until the EIA number printed at 10:30 EST. CL opened in range but value was lower than the previous day. In the D period the market extended up and began to test yesterday's value low and auction back to settlement. In monitoring the DOM, the activity level was not very active and the tempo was low. On a test of yesterday's value, I entered in the D period looking for the market to rotate lower to the other side of the day's value range.


Exit

In the F period, the market did rotate down but missed my target by a couple of cents. After the low period in F, the market tempo changed and I exited after the G period ended and H began to take off. The H period turned out to be a major breakout to the upside the remaining part of the day.

The second and third trades were on the NQ. The market opened and tried to go higher (from the CPI numbers earlier), but was rejected at the overnight high, then fell back through the opening range. As C period opened, the day open in period A was not crossed in B and as long as that formation remains, I am bias to the short side in the AM. As C began to develop, the tempo was sluggish and you can see the buyers struggling to get past 15052. I was planning to take a short should the market get back to "half back" of today's range which was in the same area as yesterday's value high, but once the market takes off to the downside, I entered anticipating the break of the initial balance based on tempo and weakness.


Exit

This is one area which is challenging for traders and that is bias. I try not to pay much attention to news and let the market speak, but there was a bias in my head about the lower CPI numbers and how the market reacted prior to the open at 8:30. On the exit of this trade I was keeping a reasonable target expecting perhaps a test of the yesterday value low, but I felt odds were high that the market would rotate higher. I took the trade off early and if I would have removed that bias and stayed in as long as the market one time framed this would have been a better trade.

The final trade in the PM I was looking for a rotation back higher vs. a trend day, but the market stalled and balanced the rest of the day. I just exited around BE and called it a day.

August 12 - FX Preparation



On both 6E and 6J, the markets are in a very tight range this week with two days of difficult trading. Today both are opening in range and value, so there has been very little change in market sentiment and value.

6E on the daily chart is at a key level - either we have a recovery (perhaps a short-covering from last week's sell-off), new short sellers enter the market and drive lower or we continue to rotate/balance. We added open interest on the move up yesterday, which leads me to believe this market may break higher before continuing lower. If we would have had a reduction in open in interest yesterday, then a short-covering would be confirmed. Today I am going to be patient and fade any extremes until the market decides to find direction.

On the 6J we are still one-time framing lower, so we are not in balance yet. We tested prior lows at the 9030-9037 level. I will be targeting selling any strength if 6J stays under last week's low of 9063 and see if the daily can continue to one-time frame.

Getting a chance to get into the 6E today. The market opens and in the A period bounces off of 1.1746, which was the previous lows where were broken, as well as settlement price is at 1.17455. With this resistance level holding on the open and the break of A in the B period entered short with the target of completing a similar range as yesterday.



Trade Management

We are getting a move down in D period. E period was an inside bar, then F dropped down to make a poor low. We still have much of the range to go today and this level has high odds to be taken out. If it is, then on an extension down, I will look to exit.



Exit

The day did not follow through from D and F periods and back into a tight range at only 25 pips today. Exited towards the end of the day at the lower end of value.

This afternoon CL had a good opportunity with an excess trade. The market this morning during the first two hours was in a tight balance from 69.85 to 69.30. There are a couple of options on how the day will finish. First, the balance breaks which creates a double distribution trend day. Second, we have a retest of yesterday's value and the H period spike and reject. Usually, when this happens the market goes to the opposite side of value or even breakout to the opposite side. In the E period when CL broke balance, retested yesterday's value high it was strongly rejected back up into today's value. Once that happy and we left the excess, I entered long in F targeting the overnight high.


Exit

The market does rotate up and starts to break out in the G period I am looking for continuation and a spike higher to the overnight high. If that does not happen and falls back into range at C, I would exit. The break was muted and the DOM was not very active, so exited when it fell back at C period.

August 13 - FX Preparation



Both 6E and 6J are opening higher and out of range. Two options are: (1) a counter auction back to settlement price (2) if closing this gap with the counter auction does not happen early in the session, we go with the gap. The opening range trade is also in play if the market open is at the extreme of the range.

The 6E has bounced back above key support levels broken earlier in the week at 1.1746-1.1762 range. With the gap up, plus outside bar on the daily from yesterday, I am looking for long opportunities.

The 6J has a similar formation with outside bar on the daily to the upside. Same situation as the 6E in terms of strategy. Should the market auction back down to yesterday's value, that would be an opportunity for a long entry on weakness.

August 13 - Equity & Energy Preparation



CL remains in balance and looks like the daily is starting to lose momentum to try and recover last week's major move to the downside. The question is will a recovery continue to the upside or will the downtrend resume. We are back within last week's range and in the overnight, we broke the one-time framing on the daily. Today we are opening in range with a short overnight inventory. I am going to be patient today and let the market settle to determine a good entry.

ES has now convincingly broken out of the daily balance over the last two weeks. Open interest over the past few days has continued to pour into this market, although movements have been muted. We are opening outside of range from yesterday and this is lining up for a major move higher. The scenarios I am targeting are the gap rules. First, does price counter auction the overnight inventory in early trade. If so, I will look for a long at yesterday's range or value high. Second, the opening range if active at the market open maybe the play should be market just take off. It may due to the large open interest increases in the last few days.

NQ is opening within range and yesterday looked to be a short-covering day. We had +59 points but open interest dropped by about 1,000 contracts. This weakens a market, so my expectation on NQ is to be weak and still remaining in range on the daily chart. I plan to be patient and look for value plays from yesterday's range at the extremes.

Two trades on Friday with the first being on the 6E. 6E was opening out of range and in the overnight the EUR had positive news which drove it out of yesterday's range. The open interest and price change from yesterday confirmed continued energy to the downside, however with the positive news perhaps many short sellers were going to look exit their position here on Friday to cover. The market opens and the open is right at the low of the opening range one once the market broke the opening range and overnight high entered long. My initial target was the 1.1790 area as that would be the ATR for the day, but as long as this one-time frames, we will stay in the trade.


Exit

The market in the first two hours could not decide to fully break. However, in the E period (10-1030 EST), the market took off. Unfortunately, at that time I was checking out other markets and my target was hit without having the chance to move it up with this new strength. The market went up another 15-20 pips, so I left some on the table, but always good to have your target line hit for an exit.

The second trade was on NQ. The equity markets remain slow and the NQ was opening in range, but it was at the top of yesterday's range. At the open, the market tried to move down and trade in yesterday's value are, but rejected in the A period. The B period made another attempt and was rejected again, but the market tempo was slow and was setting up for a rotational day. The NQ is still in balance on the daily chart, so I felt the odds were very high that a trend was not going to develop and this would be a rotational day. For the entry I was looking for any weakness which would test yesterday's range which happen to match up with the top of the opening range. Entered long on this retest in the G period with a target at the top of the value area.


Exit

In about 20 minutes the market rotated nicely back up to the upper end of value for the exit. These reversion trades (or when the market is rotating) I have been working on vs. always looking for the breakout or trend. When we are 7 wide on the POC and the market trades outside of value, these make for low-risk high probability trades. It takes a lot of energy to come into the market to pull away from the fairest price of the day, which puts the odds in the traders favor.

FX Market Preparation



On both the 6E and the 6J we have a similar story. Each is in balance on the monthly and weekly time frame with the 6E slightly more bearish. On the daily chart, each had a big up day on Friday, which is now one-time framing trying to recover the past few days. However, in both instruments it is clear Friday was a short covering day. We had an increase in price, but open interest was significantly reduced (money coming out of the market), which signals shorts exiting and buying to cover. When short-covering occurs it actually weakens the market further, so my expectation this week is for each of these to eventually head lower and retest the lows: 6E = 1.1720 and 6J = 90270. Early this week I am going to be patient and let the steam run out of Friday's short-covering rally, then look for an entry once the market heads lower.

Energy & Equity Market Preparation


CL

CL remains in balance on the monthly chart, but the weekly and daily are heading bearish. The weekly put in a Doji last week but made a lower low to begin one-time framing. The daily made a bullish correction early in the week from the prior week's sell-off, but Thursday and Friday produced two bearish days and it looks like it may target last week's low of 65.15. We are in rollover this week, so a strong direction may not materialize, but my expectation is to retest 65.15 again. This week I will be looking for opportunities to sell strength.

ES

The ES is clearly broken out of balance (although not with a lot of momentum), but the market has accepted price levels above balance for a couple of days now. All three charts (monthly, weekly, and daily) are one-time framing. This week I will look for opportunities to buy weakness as the prior day's value areas are retested. This one is pretty easy, just find some weakness to enter.

NQ

The NQ is a little different. All charts are one-time framing, but it is still in balance for the last 14 days on the daily chart. It made an attempt early last week, but failed to break out of balance. We had a good move on Friday along with open interest increasing, so perhaps enough energy is coming into the market for the break. Until it breaks balance and as it approaches the high of the balance area, I am going to stay out. Once it breaks, we will then look at opportunities to go long. Also, I have no interest in shorting at the top of balance because everything is pointing higher. I believe it is just a matter of time (perhaps this week), when balance breaks.

Sunday evening on CL provides a good trade opportunity. From the weekly preparation, we had a decrease in open interest and lower closing from the market on Friday. Early in the week's daily chart, we had a recovery from the prior week's sell-off, but sellers began taking over on Thursday and Friday. Now, the daily has begun to one-time frame lower targeting the swing low. On the TPO chart, the market gapped down and then auctioned higher in the first period this evening. It began to retest yesterday's value (68.28) and the section of single prints (68.13 - 68.24), which should provide strong resistance. This trade is a value trade where the market accepted lower pricing at the close of Friday and is now finding out if the market is willing to accept Friday's value. These usually provide high probability trades. My initial target is to begin at the low of the session, which is around 2R.



Exit

The market moved down nicely to fill in the N period and towards the open. The weekly low from two weeks ago (purple line) is just below the 2R target, so I exited at this level. It may continue down and break, but this level may provide some support and I would rather sleep tonight . A good start to the week.

Hi Rush2112
I studied daily price action and market profile (TPO chart) for 4 years but still not successful in trading.
Reading your post, I think maybe this is the direction of my success.
Thank you very much and hope for your help.

Hi Rush2112
How are you?