TPOs, Non-Excess Extremes and Profile Ledges
What is a TPO?
OnOvernight Session More a market profile chart, a TPO is a graphical representation of a unit of time that usually represents 30 minutes. Each price traded during a 30 min TPO unit is printed as a histogram-style representation of the day’s trading activity.
As each letter (TPO or a block) is printed against the price axis and the letters begin to overlap, a distribution takes shape forming the market profile. Areas that have traded the most form an HVNHigh volume node, or peak. An area that has been well traded... More (High Volume Node) and areas where price has been rejected create LVNLow volume node, or a trough in volume or TPO chart. More (Low Volume Node) in the distribution.
Non Excess Highs and lows
Non-Excess (NonXS) are extremes of the day’s trading range where more than 2 TPOs have formed. It indicates that the price spent a long time in that area indicating that there may be interest for participants to continue their activity at those levels or further. During slower market regimes a NonXS high or low may indicate a lack of willingness of buyers or sellers to trade further, or that a passive participant is willing to absorb liquidity provided by the opposing forces at those levels. These different setups mean very different things and are not always simple to identify. Following Price actionPrice action More and volume is a good tool to assist in these cases.
Non-excess highs or low, continuation: Caused by an aggressive auction in either direction but temporarily meets support or resistance (greater liquidity). In many cases, this is the textbook market profile setup and once recognised, an entry prior to the retest and continuation is the favourable strategy.
Non-excess, absorption: In this case caused by passive buyers or sellers increasing liquidity to a level and maintaining supply. In this case, there are two possibilities:
- The liquidity that is absorbing is eventually depleted and then the auction with continue onOvernight Session More and beyond. This set-up can be brutal the longer a nonXS holds, as stops are often placed beyond an observed area.
- Liquidity remains resolute and opposing forces trading into the non-excess area eventually get frustrated and reverse the auction.
The key to identifying the setup is understanding;
- HTF location and context.
- Orderflow and Volume
What are Ledges
Ledges represent a graphic representation of where price came to a halt and found support or resistance in the internal distribution of a market profile. The principles described above for non-excess structure are in essence the same for the ledge. Ledges represent strong support ad resistance.
Areas that have traded the most form an HVNHigh volume node, or peak. An area that has been well traded... More (High Volume Node) and areas where price has been rejected create LVNLow volume node, or a trough in volume or TPO chart. More (Low Volume Node) in the distribution. A developed ledge represents an area of the price that has been resolutely defended by buyers or sellers. The more TPOS at a ledge the bigger the opportunity.
Think of a ledge as a weak damn filling up with water that may eventually break, the more water that presses against the damn, the more the damn will need to be reinforced. If the reinforcement fails the greater force of water is unleashed.
Or the reinforcements hold and the water eventually retreats,
Retain the Information
Knowing that an auctioned area has displayed a stubborn defence of a given level is important information that should be carried forward.
Not all ledges are equal.
Understanding the market regime is extremely important as explained above context and location are important as well as the trading environment.
I will come back to this blog and add some images and examples.
The opposite of NonXS is excess checkout on how I use these setups.
Trade Well and prosper.