Combining Tools: Profile + AVWAP
Mutual Reinforcement
Another look at using the market profile as a powerful tool - this time in combination with AVWAP.
Image 1. Symbiosis. Leading humans to sweetness. The Yao and the honeyguide bird
The Market Profile
Recall the study guide from CBOT. Yep, you can find it for free at that link, no sign-up necessary.
Longer-term readers now have a strong fundamental understanding of four core systems - the profile, anchored VWAP, footprint, and the tape. In the next few lesson I will take us on the road of symbiotic relationships. I think these tools are well suited and mutually reinforcing, from the macro in the profile, to micro at how we use the tape to identify exhaustion and initiation.
You notice that I don’t employ many tools like intraday EMAs, stochastics, Bollinger bands, or fancy indicators. I do refer to some of these occasionally on higher timeframes however. I generally prefer to keep my charts clean and reduce noise and indecision as much as possible.
Let the market be the guide, not a latent derivative.
Over the years, my most reliable combination for intraday trading became the market profile paired with an anchored VWAP. It not only helps me to see the day ‘type’ early on, but the use the combination to stay on the right side of the market.
Don’t get me wrong - I still primarily use the naked tape/price action to gauge entry timing. This comes with thousands of hours of screen time to get a ‘feel’ for what price may do next. However in my opinion this is a great, intuitive spot for new intraday traders beginning their careers.
I use Sierra Chart below. This is my default trading platform. However many other services and software have volume profile and time price opportunity studies. If you have any questions or even tips for other followers, leave them in the comments below.
Historical Opex
Image 2. SpotGamma data as of June 16, h/t TKL
Friday, June 20. Just when you thought congressional bills could not get bigger or more beautiful, Friday was the largest opex in history with 6.8T notional optional value expiring.
My thesis for the week given opex was a pin around 6000 ES, and we ended up near 6025. Regardless I was not expecting large moves in either direction, and I was even more underwhelmed by the low volatility during FOMC on Wednesday.
So coming into Friday, I was not expecting a high deviation from this psychological number.
What are the important first clues seen in the profile below?
Image 3. One-time framing
First of all, we are one-time framing down (OTFD) on the daily as of Friday open. Second, the POCs have been moving steadily downward.
Sellers are in control going into the weekend.
Finally, Friday opens within Thursday value area, and indeed above POC and VPOC. Any real strength would need to see volume and momentum above Thursday’s value area high (VAH - the white letters), followed by a break of OTFD with price trading over the prior day high (PDH).
Any fail to do so would likely result in a reversion to the prior day POC or value area low (VAL), and potentially beyond. That would mean potentially very profitable trades against an anchor VWAP set to the high!
A Footprint Detour
Clearly buyers failed to take out the PDH. As a bonus, let’s take a look at the footprint before diving into the AVWAP!
Image 4. 5m footprint, June 20
The delta on the 9h30 opening candle is an anomaly. The overnight was well bid and buyers initially pushed out of the gate, although sellers were quick to sell into the higher prices - leaving a ‘gravestone doji’ in the delta.
The candle also closed red… not a sign of initial strength.
Image 5. A candle classic - the gravestone doji
Let’s look at two more glaring clues from the footprint.