Free Exposure Trades

BarroMetrics Views:  Free Exposure Trades

In traditional Market Profile, there is a category of trades called “Free Exposure Trades”. Pete Steidlmayer taught these trades gave us time to exit i.e. we could exit trades in the Initial Balance period of the next day at a price that at worst would be breakeven.

An example of this was the “Neutral Day Closing in the Lower Quadrant”.

My own research showed that for the type of trade, the free exposure true only if we had sold above the Value Area high and bought below Value Area low.

A friend of mine, Chris Talbot,  found there was an edge taking a free exposure trade at the close and exiting usually at the open of the next day, and certainly no later than the end of the Initial Balance.

So what does this have to do with the S&P?

Well, yesterday we saw a Neutral Day closing at the Lower Quadrant. This means that at some point during today’s Initial Balance, we should see the S&P below yesterday’s close . If we add the Sentiment, Volume and other Price Structure considerations, then we may be seeing at least a temporary top. For that to be true, today, we’d need to see a bearish directional bar.

Let’s see what today brings 

FIGURE 1 shows the Neutral Day.

For the Free Exposure to hold, we’d need to see prices trade below for most of today’s Initial  Balance. 

(For the meaning of Neutral Day, Initial Balance, Value Area go to www.profiletraders.com/education/glossary/) Note that although Profile Traders says that the IB is the first hour of trading. Jim Dalton [Mind Over Markets] found that for the S&P, the first 90-mins is a better measure for the IB.

For those interested in a more contemporary Dalton view see Preparing for the Opening Bell and the First Two Hours of Trading 

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