The hAnDbOOk Of TeChnICAl AnAlysIsprices are fair or otherwise across shorter time horizons. Prices that seem expen-
sive or unfair to the shorter‐term or daily traders may in fact be regarded as cheap
by the longer‐term participants, if they believe that value will increase in the fu-
ture. Similarly, prices that seem cheap to the shorter‐term or daily traders may in
fact be regarded as expensive by the longer‐term participants if they believe that
value will decrease in the future.
The range of TPOs indicated at 4 represents the range extension, that is, prices
that exceed the initial balance. Range extension is regarded as evidence of activity
by the longer‐term participants.
The two uppermost extreme TPOs indicated at 2 represent the single print sell-
ing tail, whereas the lowermost TPOs indicated at 3 represent the single print buy-
ing tail. Tails must consist of at least two or three TPOs in order to be significant.
Longer tails indicate greater conviction by the market participants. These ex-
tremes in price within the distribution range indicate very vigorous buying and
selling behavior and reflect greater divergence between price and value. The range
of prices indicated at 5 represents the value area based on the TPO count. Finally,
the range of the distribution is indicated at 6, which is just the difference between
the highest‐ and lowest‐priced TPOs.
Market participants of the profile
If prices are at the upper extremes of the initial balance or value area, the daily
or shorter‐term participants may perceive prices as expensive, unfair, and totally
unreflective of current value, inviting them to respond by selling, thereby returning
prices to a fairer expression of value. Similarly, if prices are at the lower extremes
of the initial balance or value area, the daily or shorter‐term participants may
perceive prices as being cheap and totally unreflective of current value, inviting
them to respond by buying. We call this responsive buying and selling. They are
responding to what they perceive as expensive or cheap prices.
On the other hand, even if prices exceed the value area or the upper extremes
of the initial balance, the longer‐term participants may still perceive prices as
cheap and totally unreflective of future value, inviting them to initiate a new up-
side move or trend by buying, driving prices away from the current initial balance
or value area. Similarly, if prices exceed the lower extremes of the initial balance
or value area, the longer‐term participants may perceive prices as being too ex-
pensive and totally unreflective of future value, inviting them to initiate a new
downside move or trend by selling. We call this initiative buying and selling. They
are initiating a new move in the markets against what they perceive as cheaper or
more expensive prices with respect to future value.
Therefore, the main difference is that initiative action is driven by the expecta-
tion of future values over the longer term, whereas responsive action is driven by
the belief that prices are currently too expensive or cheap and should return or
revert back to fair value, over the short term. Unfortunately the value area and
range may be continuously changing throughout the day and this makes the abso-
lute and final determination of initiative and responsive action with respect to the
value area and range extremities less consistent. The determination of initiative