SP Intraday 3

In SP Intraday 2, I said that there were major differences between the gap on Tuesday and the potential gap yesterday (potential at time of writing).

If we put aside the size of the gap, the differences I spoke of were structural. In order to explain these differences, I need to give you some background to ‘the Steidlmayer Distribution’. This is now also called the Market Profile. Initially Peter called it the Steidlmayer Distribution to distinguish it from the traditional Market Profile. The major difference between the two is this:

In the Steidlmayer Distribution, there are no fixed time frames and time periods in which a distribution occurs. In the traditional Market Profile, we use 30 minutes time periods to form a profile for one day’s trading.

A Steidlmayer Distribution has four parts:

1) It begins with a directional move which I call an Initial Price Movement (IPM). Think of this series of directional bars with few or no overlapping ranges and retracements.

2) Development (rotation) begins and with it, the formation of the Point of Control (the mode of the forming Profile i.e. the line containing the greatest volume) determines if the Profile will be a sideways market, a bullish profile or bearish profile.

(NOTE: For the Point of Control to play a part, development must first begin. In an Initial Price Movement, the Point of Control will tend to lag the directional move).

A sideways market takes the form of a bell curve with its Point of Control in the 60% to 45% area of the IPM’s range. A bull profile (looks like a ‘p’) has the Point of Control in the top 1/3 (or higher) of the IPM range; the bear profile (looks like a ‘b’) has the Point of Control in the bottom 1/3 (or lower) of the IPM range.

Think of this as a pause which may turn into the next phase.

3) Development forms and with it the first standard deviation forms. Pete called this Value Area.

Think of this a sideways market.

4) Development completes and usually from the Point of Control of the completed distribution, a new IPM forms that either moves in the original direction or accepts above 50% of the IPM range. If the latter occurs, the IPM will go on to form either a larger sideways market or the start of a new directional trend.

Think of this as the breakout following a sideways market.

Of course the market need not complete the four steps or may stay in any one phase longer than normal. In doing so, the market provides information on the strength or weakness of the market.

Now let’s turn to the gaps.

On Monday, the market had returned to my preferred zone to stop the rally and had formed a balanced day. The next day the market gapped on the open and formed a directional day down.

Pete Steidlmayer used to say: “Trend days are not good continuation days unless they mark the beginning of a move”.

Let’s look at this idea from the stance of the four stages. If the trend day marks the completion of an Initial Price Movement, then the likelihood is the next phase will be the development phase. If the trend day marks an uncompleted Initial Price Movement, we are likely to have continued directional moves.

  • Q: How do we tell whether the Initial Price Movement is likely to have ended?
  • A: By keeping stats on the Initial Price Movements’ duration in the various time frames.

At the conclusion of trading on Tuesday, the Initial Price Movement that had begun on Monday’s close had travelled just under mean +2 stdevs. This made the commencement of development likely. For this reason I took the view that yesterday, we were likely to have a rotational day.

Figure 1 shows a combined profile from the 3:30 to 4:00 PM Feb 4 to 4:00 PM Feb 5. At this stage the Point of Control is 1358 (just below the 50% of the IPM – the white rectangle). There is no development as yet. This can be seen from the even distribution of the volume. BTW, the various lines on the profile represent my resistance zones.


FIGURE 1 Market Profile Wednesday Morning

And so it turned out (got lucky). The market formed a rotational day until the ‘E’ period when it rallied to the first resistance and then started down.

In my view, the new Initial Price Movement came in early and yesterday was a ‘Neutral Day closing in the lower quadrant’ (traditional Market Profile). What this means for today, I’ll complete tomorrow. But the questions to ask are:

  • Is the move from ‘E’ the start of a new Initial Price Movement down or part of a rotational process?
  • If a new Initial Price Movement, are we likely to have continuation of the directional move or the start of development?
  • What is the significance of a ‘Neutral Day closing in the lower quadrant’? (See Mind Over Markets by Jim Dalton)

Figure 2 shows the Split profile as at end of trading Feb 5. Figure 3 shows the Neutral Day.


FIGURE 2 Split Profile


FIGURE 3 Neutral Day

8 thoughts on “SP Intraday 3”

  1. Ray

    Would like to try to comment on your last question about the significane of a Neutral day close.

    As I do not have the copy of the book with me now, I belive a Neutral Day profile is one of the structures based off of the first hour’s price range known as the Initial Balance. Another condition of structure is Range Extension when the price traded moves above or below the Initial Balance.

    For a Neutral day, the profile is not characterized by its Initial Balance but by a Range Extension in both directions and a close near the centre of the day’s range. This structure demonstrates lack of buyer and seller conviction.

    Not too sure what the significance of the close is at the lower quadrant.

    Still trying to recognize the various structures of Market Profile in general.

  2. Hi Ana

    You are right. A Neutral Day is one where the structure for the day is rotational and the range of the Initial Balance is extended in both directions.

    However, the comment, “This structure demonstrates lack of buyer and seller conviction”, is only true of a Neutral Day that closes in the middle quadrant.

    If it helps jog your memory a Neutral Day closing in the lower quadrant represents a ‘free exposure trade’.

    If that doesn’t help, then not to worry, all will be revealed tomorrow.

  3. Mr. Ray,
    I do not agree with your view yesterday was a Neutral Day. Not a well-formed Bell Curve, Range Extension was twice as much on the downside of the Initial Balance, Rotation Factor was -7 and the market was trying to go down. With success, when you look at the close. For me it was more a Trend Day.
    May be I overlooked something?
    Anyway, thank you for your blog articles on Market Profile.
    I would like to know something more about your use of Market Delta. Can you mention it in one of your future comments please?
    Thank you and greetings from Belgium.

  4. Hi Jozef

    Thanks for your post and kind comments.

    Regarding Market Delta: sure, I’d be happy to mention Market Delta in future blogs.

    On the Profile for yesterday: Well, we can agree to disagree.

    Here is why I call it a Neutral Day.

    1) It was a day that had a Range Extension to both sides with a POC slightly higher than I’d have liked (above 60% of the range). On the other hand we did have the up/down move so characteristic of ND.

    2) I have not seen a trend day that moves in both directions – seems to defeat the whole idea of a trend day being a directional day.

    3) I agree with you that the bell curve was incomplete but that’s not a reason for the day not being a Neutral Day.

    4) The RE being twice the Initial Balance? I can’t see that.

    * My IB for the ES is the 1st 90 mins.
    * That range ran 1349.5 to 1334.5 = 15.
    * The RE down ran from 1334 to 1324 = 10.

    But even if the RE down had been twice the IB, I’d not have disqualified the day as a ND for that reason.

    5) I do agree that the RE to the downside was stronger than the RE up. But this comparison is a measure of the market’s direction and not a type of day classification tool.

    6) I have stopped using the Rotational Factor. Since it was developed in the 90’s, markets are now tending to move vertically in one direction and then reverse. So by the then end of the day, you may have a bell curve and a negative rotational index. This is especially so if you have a price trend in the last 3 periods.

    So there you have my reasons for calling yesterday a ND.

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