Buying Tail and Selling Tail in Market Profile

Understanding Buying Tail and Selling Tail is study of market profile is very important. This can give you highly probable insight on next day movement.

Buying Tail

As a pioneer range enters and explores a new territory of lower prices, it may quickly encounter responsive buyers. Responsive buyers are long-term traders that are attracted to the market when they see a bargain. As the pioneer range drops to a level that is attractive to these long-term traders, they will quickly pounce on and buy these bargain prices, in much the same way that shoppers might jump at significantly reduced items on sale at a retail store. Once this activity takes place the market announces that the pioneer range has discovered an area where prices are considered to be at an unfair low. These low prices are quickly accepted and snatched up by the buyers, resulting in a single print buying tail. A buying tail indicates the presence of aggressive buyers in the market at that price level at that point in time. The longer the tail, the greater the bargain.

Although, arguably even a single print could be considered a buying tail, a tail with a single TPO does not carry the same significance that a longer buying tail will have. The longer the buying tail, the greater the conviction of the buyer or buyers at that price level. The market will frequently return to test these bargain levels to determine if the buyers are still as aggressive and as interested as they were in the past.

Selling Tail

When a pioneer range enters a price area where prices are rejected by market participants and considered to be at an unfair high, you will observe that sellers will eagerly step into the market. The sellers will be ready to supply the market and sell as much as they can at these unfair high prices. The aggressive response of the sellers creates the selling tail as seen in image.

The same rules of size for a buying tail apply in the case of a selling tail. The longer the tail the more significance it carries. The market will also frequently return to test these levels of unfair highs. The future presence of sellers at these levels will depend on developments in the market conditions. The market is continually changing and that is why these levels are sure to be tested at some later date.

Ankit Maheshwari

Ankit is an avid writer with experience of working Investment Banking domain for over 7 years. He has been tracking Indian markets for over 10 years now for educational and learning purpose.

Leave a Reply

Your email address will not be published. Required fields are marked *