Misconceptions about Poor Highs and Poor Lows
Market profile - poor highs and poor lows
Context relating to Poor Highs/Poor Lows
In the original Market Profile concept, there is plenty of talk about 'poor highs' and 'poor lows'.
First up, what are poor highs and poor lows?
They represent two TPO letters in the same row, kind of creating a ceiling of sorts. The original idea is that this profile structure means that the market has gone either too long or too short.
But I've repeatedly come across traders who take ANY poor high and poor low as an indication that the market is too long or too short.
However this is where the misconception is: not EVERY poor high and poor low are statistically relevant.
As always, devil is in the detail.
In order for the market to be too long or too short - this implies that there needs to be a sufficiently strong auction PRIOR to the price creating a poor high or a poor low.
If the price simply creates a two TPO structure by merely poking outside of initial balance and swiftly returning to it, this is actually a FAILED auction, not any sort of a sustained move that would warrant a validity of a poor high or poor low.
Therefore this image on the right represents INVALID poor high and poor low - because there is no single prints, no strong trending auction that preceded them!
First up, what are poor highs and poor lows?
They represent two TPO letters in the same row, kind of creating a ceiling of sorts. The original idea is that this profile structure means that the market has gone either too long or too short.
But I've repeatedly come across traders who take ANY poor high and poor low as an indication that the market is too long or too short.
However this is where the misconception is: not EVERY poor high and poor low are statistically relevant.
As always, devil is in the detail.
In order for the market to be too long or too short - this implies that there needs to be a sufficiently strong auction PRIOR to the price creating a poor high or a poor low.
If the price simply creates a two TPO structure by merely poking outside of initial balance and swiftly returning to it, this is actually a FAILED auction, not any sort of a sustained move that would warrant a validity of a poor high or poor low.
Therefore this image on the right represents INVALID poor high and poor low - because there is no single prints, no strong trending auction that preceded them!
Valid poor highs / poor lows
Conclusion
In reality, valid poor highs and poor lows are EXTREMELY rare structures. If you take an entire year of trending moves, they will occur only on about 20% of trending days.
Considering that the real trending, strong auction days only occur about 30% of the time (depending on the asset class and product in question, of course - ie equities tend to have a slightly higher incidence of trending days), this means valid poor highs and poor lows are so rare that they are simply not statistically relevant for most day traders. However SHOULD they occur, they are a high probability indicator that the market has gone as high or as low as it will go - at least for that particular session!
Considering that the real trending, strong auction days only occur about 30% of the time (depending on the asset class and product in question, of course - ie equities tend to have a slightly higher incidence of trending days), this means valid poor highs and poor lows are so rare that they are simply not statistically relevant for most day traders. However SHOULD they occur, they are a high probability indicator that the market has gone as high or as low as it will go - at least for that particular session!