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Market structure, briefly

The ideas behind Stratlynk's market-context tooling and the day reads. Educational only — these describe how auctions behave, not how to trade them.

Market Profile

A market is a two-sided auction. Price moves to find trade: it travels up to find sellers and down to find buyers, and it stops where both sides are willing to do business. Market Profile, developed by J. Peter Steidlmayer and taught by James Dalton, organises a session to show that auction.

The session is cut into 30-minute periods, each given a letter (A from 09:15 for NIFTY). Every price a period traded at gets that period's letter. Stack them sideways and the session becomes a distribution: wide where the market spent time (accepted prices), thin where it moved through quickly (rejected prices).

Point of control (POC): the price traded in the most periods — the session's fairest price.
Single prints: prices only one period traded through — a fast move the market did not return to.
Tail / excess: single prints at a session extreme — the auction went there, found the other side, and left.
Poor high or low: an extreme with no tail — the auction stopped without a clear rejection, often revisited.

Initial balance

The initial balance (IB) is the range of the first hour — the A and B periods. It is the first area of agreement between buyers and sellers who were active early.

What happens at its edges says something about the day. A move out of the IB that is accepted (price stays and trades there) is range extension: one side has taken control. A move out that is quickly rejected back inside is a failed attempt, and in Dalton's phrase, from failed moves come fast moves in the other direction.

Narrow IB: early agreement was tight; the day has room to extend.
Wide IB: much of the day's range may already be in.
Extension on both sides: neither side kept control — a more balanced day.

Value area

The value area is the band of prices around the POC where roughly 70% of the session's trading time was spent — from the value area low (VAL) to the value area high (VAH). It is where the market agreed on price that day.

The next session's open relative to yesterday's value frames the day: opening inside value suggests balance and rotation; opening outside it means the market must either accept the new prices or return to value. Activity is then read by location — buying above yesterday's value is initiative (taking new ground), buying below it is responsive (reacting to low prices).

Acceptance vs rejection

Every level reduces to one question: when price reached it, did the market stay or leave? Acceptance means time and trade build at or beyond the level — the market agrees with the new price. Rejection means price touched it and left quickly, usually leaving a tail or single prints behind.

So a level is read as it happens, not in advance: if it is accepted, the auction is continuing in that direction; if it is rejected, the other side is defending it. Neither is a prediction — both describe what the market is doing.

Large prints and open interest

A large print (LLT) here means 500 or more lots of NIFTY futures trading in one ~2-second snapshot of the market. The data has no flag for who started the trade, so the side is inferred: a trade at or through the offers reads as buyer-initiated, at or through the bids as seller-initiated.

Open interest (OI) — the number of open futures contracts — says whether positions opened or closed. Every trade has a buyer and a seller: OI rises when both open, falls when both close. So a buyer-initiated print with OI up reads as new longs; with OI down, short covering. OI updates about once a minute and nets everyone trading in that minute, so this is an inference, and it is checked again 10 minutes later in case the change did not last.

None of these readings has been shown to predict price. They describe who was active, not what happens next.

Glossary

Auction: The process of price moving to find two-sided trade.
Balance: A range where the market rotates and agrees on value; the opposite of a trend.
Composite: A profile built over several sessions to show longer-term value.
Excess: A tail of at least two single-print rows at an extreme — a clear end of an auction.
Initiative / responsive: Activity that takes price away from prior value / reacts back toward it.
Open type: How the session began: open drive, open test drive, open rejection reverse, open auction.
Range extension: Trade beyond the initial balance after the first hour.
VWAP: Volume-weighted average price; a swing VWAP is anchored at the last major turning point.