Trading Indices With Market Profile

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S&P 500

I initiated some long positions yesterday. Just 5-10% of intended position size.

For the price to move up beyond 1650 – 1665, reasonable amount of buying would be required. I would suppose, Initiative buyers will have to step into the market and extend the prices higher. Currently there are strong responsive buyers and sellers in the system. Responsive sellers exist in the region of 1650 – 1665, whereas responsive buyers exist in the region of 1600 – 1605. In the chart below, I have highlighted that profiles of May & June indicate the presence of strong responsive sellers. Any strong up move will only happen once this supply zone is crossed comfortably. Similarly, I have also marked demand zone where responsive buyers have supported the price from falling below 1600 significantly.

Till the price remains in this range, there is no point in adding to existing positions aggressively. Once the price moves above this supply zone, positions can be added to benefit from a trend. At this stage, most of the trading is happening between the locals and directional activity can only be expected once Other Time Frame trader steps in and provides impetus to the market.

 

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S&P TSX

If you look at the Market Profile chart of S&P/TSX, then the individual profile of April, May and June do not depict bullishness. Profiles of January – March suggested presence of strong responsive sellers as price failed to go past 12900. In April, initiative sellers entered the market and drove the price lower. This was encountered by some strong responsive buyers who reacted to prices being driven lower. In May, buyers attempted to go past 12900 one more time. However, selling tail on the May profile around the previous resistance levels, gave a clear signal that strong sellers (both responsive & initiative) are present in the market. June profile confirmed this view as prices were driven lower by initiative sellers. June profile however witnessed some strength as responsive buyers again pushed prices higher once April low’s were breached.

Overall structure of the S&P/TSX is weak. However, there is no denying that strong responsive buyers are present in the system. At this stage though, initiative buyers are absent and probably that is what gives me confidence. Eventually I feel, initiative sellers will over power responsive buyers. In any case, the stop is just 100 points away and therefore, given the risk reward, this short sell trade is worth taking.

Shorted close to 12280. Stop would be closing above 12400. Will reverse to longs above 12400.