How do we know if buyers or sellers caused a price spike? If price is rising it’s due to buyers and if price is falling, it’s sellers. Yes, it’s that simple but, as always, there are nuances. Look at the SPY market profile from 10/19. Buyers took it higher right from the open.
Sellers took control at what would turn out to be the high of the day. We know it was sellers because price reversed and moved lower. Once price dropped back below the opening price that made the spike ‘sellers excess’ and offered day traders a good location for a short entry. The open was also at the previous week’s HB so the selling excess triggered 2 short setups; a failed breakout above the opening price and a failed breakout above weekly HB. Enter short with a stop above the high of the day. 1 point of risk would’ve made a 6 point profit. Now you don’t have to be just a day trader to benefit from this market profile analysis. Good trade location is good trade location! A swing trade entered at the same point would be also be profitable as of the 10/20 close. That high could last for weeks or longer, who knows?
Let’s wrap up this thread by showing the previous session in $SPY. The lower spike was mostly ‘selling excess’ into the close. Again, we know that because price was falling in the spike. There was only a small amount of buying at the low of the day. Questions or comments?
