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MENTORING - Market Profile - Initial Balance and types of POCs - Coggle…
MENTORING - Market Profile - Initial Balance and types of POCs
When the market is opening, there are certain things that big boys take care of. They ensure that they trade during the first one hour of the market.
The first hour is generally preferred by large and sophisticated asset managers, which pick up huge volumes during the time.
The last hour is generally preferred by mutual funds for bettering their daily NAVs.
The in-between time is where small and leveraged players fight it out. However, large players, or asset managers, use the in-between time too if they need more inventory.
Initial Balance is the first one hour of the trading time. It is the time when large institutions are executing their big orders. Why? This is the time when liquidity is available to them at low impact cost.
In Market Profile terms, the first two half hour TPOs form the Initial Balance.
The high of the Initial Balance is called the IB High (IBH), while the low of the Intial Balance is called the IB Low (IBL). The IB is the most important indicator for profile strategies and understanding day types and open types.
However, if you practice well, you can finish off trades within the IB itself. Because post IB, liquidity is very thin and you can take trades only when you have large time and capital on your side.
A POC is the most traded price, where the market has done the largest business.
Developing/dynamic POC (dPOC) -
This is the POC that is the most important part of our Market Profile analysis. When you are trading and analysing the market intraday, the dPOC is a great tool that gives some good information.
Historical POC -
This is the POC that is established and it is not moving. It is a POC that is already formed and the market has closed. For everyday we have a POC. And the POC gives the characteristic of that day.
Timeframe POCs -
We can keep analysing POCs on various timeframes - daily, weekly, monthly, expiry month, or any other timeframe.
Trend day POC -
A trend day POC becomes a good benchmark for picking up trades or exits.
Merged Profile POCs
- If we merge the profiles of various days based on some peg (say swing high to low), that merged POC can give some great insights.
Virgin POC -
A POC that is untouched is called a virgin POC. This is a very powerful POC and acts like a magnet most of the time. Why? Because the market wants to test liquidity in that area.
Prominent POC (PPOC) -
A POC that has the longest number of TPOs is called a PPOC. It also acts like a magnet when the market travels to that area. Moreover, this POC forms mostly during balance days, as the number of TPOs at the POC are rather high.
Event day POC -
A POC that represents the profile of an event day is called an Event Day POC. Examples are result day for stocks, expiry day, RBI policy day or any government announcement or anything.
A POC based on time is called Time/TPO POC
A POC based on volume is called Volume POC
A POC based on value is called VWAP POC