Gathering Technical Clues to Determine the Direction of Markets

One of my job as a trader is to constantly gather clues to make sense of market gyrations. And then, but only then, to trigger entries and exists for profit.

There are many toolsets to achieve this. One of them, taken as part of a greater set of technical and fundamental tools, is understanding the Market Profile structure. Market profile pretty much highlights sentiment of auction markets.

J. Peter Steidlmayer developed Market Profile in the 1980s in conjunction with the Chicago Board of Trade. Traders who use it say that they get an in-depth understanding of the

market, contributing to improved trading. Many factors can be monitored from Market Profile.

Market Profile is not an indicator in the typical sense. It does not provide buy/sell recommendations but acts more like a decision-support tool. It organizes the data so that

you can understand who is in control of the market, what is perceived as fair value, and the direction of the price move. It is possible to extract enough information from Market Profile for you to position your trades more advantageously.

The concept of Market Profile stems from the idea that markets have a form of organization determined by time, price, and volume. Each day, the market will develop a range for the day and a value area, which represents an equilibrium point where there are an equal number of buyers and sellers. In this area, prices never stay stagnant. They are constantly diverging, and Market Profile records this activity for traders to interpret.

Source: Market Profile Basics - Technical Analysis of Stocks and Commodities (2002).

If you would like to learn more about Market Profile, I highly recommend the book Mind of Markets from Jim Dalton. This is the book that got me started on auction market theory and auction market trading techniques.

Let`s continue ...

Market imbalances, such as gaps, highlight significant disequilibrium areas that are important to keep a close high on.

Below is a daily chart of the SPX. There are 2 important imbalances areas that are important to watch.

The first imbalance area has now been overtaken for second time on April 14 following a previous spike up on a Wide Range Bar (WRB) on April 9, 2025. This second overtake should not normally happen in a market that shows strong conviction to the downside.

As such, it is a FIRST CLUE that the market may be entering a natural phase of consolidation as opposed to forcing its hands to the downside with conviction, which would be a typical scenario after such violent consecutive swings up and down, or even preparing for a V-reversal up, as fueled by the structure of the monthly chart that remains bullish (within its ascending linear regression channel).

Then there's the buying tail with a surge of volume. It is also a SECOND CLUE that market participants have currently set a floor at the previous 3-year Market Profile support area (4800) which we called for on April 7, 2025.

That being said, we have lots of conflicting signals on daily chart (descending linear regression channel pointing down - dotted red line in the price chart), weekly chart (overbought rate of change - yellow line below the price chart) and monthly chart (oversold rate of change - yellow line below the price chart - with ascending linear regression channel - dotted green line in the price chart).

Actions taken : we covered close to 50% of our short positions early in the morning of April 14 and are waiting to gathering more clues to determine what are our next risk-adjusted moves.

In a context of contradicting market conditions, you should let your relatively balanced positions breathe and gather more clues until you get a better understanding of the next opportunity! It's not a time to show conviction on any side. Always stay alert as volatility contracts because it may precede a big directional move!

If the second imbalance area is overtaken (as seen on the chart below), then we'd have to watch for more evidence that we are indeed seeing a V reversal up in the making. Then, but only then, there would be a case for a good conviction trade as it could trigger a short covering rally and force a lot of traders and funds to readjust their bearish positionings. But we are not there yet!

Breathe but stay alert.

Good luck!