This chart is a TPO (Time Price Opportunity) chart for Nasdaq Futures from 3/15 – 4/1/2016. I highlighted 2 areas to demonstrate how the profile can give us early clues of future market activity.
The first highlighted area is fairly wide and compact. Notice how each day ends with a profile that resembles something like a bell curve. This means the the auction is balanced and waiting for new information. It also means that there is fairly broad consensus about value and the auction is able to facilitate trade in this area.
The second highlighted area is elongated and full of holes. There are several days in this area that have awkward profiles. We would say that these days have “poor” structure. This means that the auction moved swiftly across an area of price without really checking to see if those prices were valid. It would be akin to holding an auction that is finding good trade and then all of a sudden, someone steps in and offers way higher than everyone else. Price jumps and the auction is left wondering if this was valid.
In markets, poor structure is often repaired at some point in the future. It doesn’t mean that it will be the next day, but at some point. So, in this case, pay attention to areas in the profile where there is only one TPO at a given price level. These “single prints” should be carried forward as reference points for potential revisit later.