How to Take Responsive Trades like a Pro?

The million dollar question in Market Profile Traders is, is it really necessary to know the methods to take Responsive trades even after knowing Initiative Trade setups?

The simple answer is YES!

But why? Again the simple answer is that the market trends only 20% of the time!

In other words, the probability of Trend Day and Normal Day is only 20% (we get big moves only on Trend Day and Normal Day) and all remaining days, the price will show any of the remaining day structure among Normal Variation, Neutral, Non Trend and high probability is Normal Variation (NV) day (more than 70%). If you are not aware of the day structures in Market Profile, then read this page.

Hence, we should have a trading mechanism to reap the benefits from NV Day.

Parameters required for my Responsive System

Basically, I consider below five parameters to arrive at any trading decision in my responsive system:

1)     Previous day Value Area (VA)-IB

2)     Open Type

3)     Buyers or Sellers strength

4)     Possible Peak

5)     Gap

I assess these parameters after IB range completion (after 1 hour of the market open, in NSE Exchange at 10:15 AM) because most of the time we get initiative trades at the open auction and the occurrence of responsive trade opportunity will always come after the IB range formation (high probability).

1)     Previous day VA-IB – After IB range formation, I will see where the closing price of IB range formation is. If the close of IB range is above previous day VA, then I mark this parameter as Positive, if the close of the IB range is below previous day VA, then I mark this parameter as Negative and if the close of the IB range is in between previous day VA, then I mark as Neutral.

2)     Open Type – There are four open types are available in the Market Profile. However, the most powerful and frequently occurring open types are “Open Drive” and “Open-Test-Drive”. In case of Open-Low or Open-Test-Drive-Up, I will mark this parameter as Positive. If price showed Open-High or Open-Test-Drive-Down open, then I will mark this parameter as Negative. In all the other cases I mark this parameter as Neutral. If you want more information on Open Drive and Open-Test-Drive, then please read this page.

3)     Buyers or Sellers Strength – I will look at the candlesticks in the IB range and then I will decide whether to mark this parameter positive, negative or neutral. If you get confused, another way to assess this parameter by comparing IB close level with IB open level. If the IB closing price is above IB open price, then it indicates buyers are powerful in the IB range, hence I mark this parameter as Positive. If the IB close is below IB open, then it indicates sellers are powerful in the IB range, hence I mark this parameter as Negative. If the IB open and close price are same (very rare chance), then I mark this parameter as Neutral.

4)     Possible Peak – On many occasions, successful traders don’t like to share some of their secrets or findings of the market, thinking their strategy might lose the edge in the long run. However, with this concept, I am sharing one of the biggest secrets in Intraday which gives a special edge in your trading.

When any market closes on any particular day, it will always have two peaks – Day’s High and Day’s Low. The interesting thing is that the market makes one of the peaks (either High or Low) within 15 mins of the open with a probability of 60%. When you look at the same logic for 30 mins after open, the probability rate increases to 80%. In other words, if you are able to judge whether the market has made day’s high or day’s low within first 30 mins of open, then you will always have a special edge in your trading as you can hold your trade till EOD. For ex, if you observe that the market has made day’s low within 30 mins and then you can hold your Long trade till EOD and you can also avoid any Short trade for the day.

Please look at the above image with caution. In case-1, after IB range formation the price has broken the high of the first 30 mins which indicates that the probability of first 30 min low becoming day’s low is 80%. So there is a high probability that the price moves in the upward direction. Hence, we can mark ‘Possible Peak’ parameter as Positive.

In case-2, after IB range formation the price has broken the low of the first 30 mins which indicates that the probability of first 30 min high becoming day’s high is 80%. So there is a high probability that the price moves in the downward direction. Hence, we can mark ‘Possible Peak’ parameter as Negative.

In case-3, after IB range formation the price didn’t break either low or high of the first 30 mins. So there is not much clarity for this parameter. Hence, we can mark ‘Possible Peak’ parameter as Neutral.

5)     Gap: This is pretty simple and straightforward. In case of gap-up open, we mark this parameter as ‘Positive’. In case of gap-down open, we mark this parameter as ‘Negative’. In all the other cases, we mark this parameter as ‘Neutral’.

On any trading day, my assessment for Responsive System (after IB Range formation) will look like below:

In the next article, I will explain how to use this information to take responsive trades and I will show few examples.

Do you have an idea about responsive trades? Then please comment below.