Price Control

Chart 1: 7-Day Balance in the S&P.

Notes from CBOT 6-part Study Guide To Market Profile:

The market is either "controlled by price" (balanced) or "controlled by market activity" or "non-price control" (imbalanced).

As long as a particular mean price is in control (1357.50 in the above SP chart), the market will probe a higher or lower level and then return to the controlling price. Over time, the back-and-forth movement, as price moves away from value and then back to value, develops the distribution. Opportunity occurs when price moves away from value.

This mean price is not going to maintain control indefinitely because news events and market developments continually change traders' perception of value. If something occurs to change market sentiment, what kind of activity can suggest that the market may be getting ready to trend?

Basically there are two ways the market breaks the control of a particular mean: distance or time.

• Distance. A directional move propels the market far enough away from the controlling price to break its influence.

• Time. The market reaches a critical price area and then trades sideways at this level. Over time, the low volume, unfair price area becomes a fair price area and, generally, the market has to move higher or lower to shut off the activity.



Chart 2: Eurostoxx winding down to an equilibrium point.

When the deviation of assorted lengths of momentum approach zero, the action becomes whippy and erratic. Such price movement tends to precede a large trend move.

SRS