- The Market Profile is a unique charting tool that enables traders to observe the two-way auction process that drives all market movement—the ebb and flow of price over time — in a way that reveals patterns in herd behavior. Put another way, the Profile is simply a constantly developing graphic that records and organizes auction data.
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A market profile is a set of attributes relating to a target population, and in business, a target group of buyers. These characteristics typically include demographic factors such as income,...
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market profile. Set of characteristics that identify a target group of population or a market segment. Used in formulating marketing plans, it includes demographic, income, life style, psychographic, and socio-economic information.
A Market Profile is an intra-day charting technique (price vertical, time/activity horizontal) devised by J. Peter Steidlmayer, a trader at the Chicago Board of Trade (CBOT), ca 1959-1985. Steidlmayer was seeking a way to determine and to evaluate market value as it developed in the day time frame.
- Think of your target audience. If you try to think of several people at once, you will naturally become confused. The trick is in picturing the target audience as a single entity and not a group.
- Create a clear picture of the target audience. The target audience was a vague figure until now, but this is the time to create a clear picture of that audience in your mind.
- Describe your product or service. It is essential to give a proper shape and features to your product or service to make it marketable in front of the target audience.
- Establish credibility. No one is going to believe your words without suitable backing. It is imperative to establish your credibility at the very beginning so that your audience can trust you.
The market profile is an an intra-day charting technique devised by J. Peter Steidlmayer. Steidlmayer was looking to analyse the development of the daytime portion of market value. Market profile is recognised as a bell shape, larger at the middle prices with sparser activity at the higher and lower prices.
Market Profile is constituted by what are called Time Price Opportunities (TPO). Within a specified time period – 30 mn, 1 hour, 4 hour, etc – a different letter is associated with a new condition of the market. These letters are in themselves representatives of volumes of orders.
- Breaking Down The Profile
- Calculating Value
- Using Market Profile
- Identifying The Different Types of Days
- Buying and Selling with Market Profile
- Market Profile Definitions
- Links and Resources from This Article
- Summary – How Market Profile Can Help You in Your Trading
Market Profile is made up of TPO’s (Time Price Opportunities). A different letter is assigned to each 30-min time period of every trading session. I like to begin with A, but you will see varying charts start with different letters. The POC (Point of Control) is the row at which the most number of TPO’s occurred. A value area is calculated using 70% of the days TPOs to give us a value area high and a value area low. This value area is used as a reference in the following day’s trading session.
Let’s look at how we calculate value area using the TPO count. 1. Count the total number of TPOs in a single day’s profile. 2. Calculate 70% of this number. 3. Identify the Point of Control (POC), the longest line of TPOs closest to the center of the profile. Note it’s TPO count. 4. Add the TPOs of the two prices above and below the POC. 5. Beginning with the larger number of combined two rows of TPOs, add this number to the POC number, continuing this process until the number reaches 70% of the total TPOs for the day (the resulting number from step 2). Example: 1. Total TPOs = 131 2. 70% of 131 = 92 3. TPOs at POC = 11 4. TPO Count = 11 + 20 + 18 + 16 + 14 + 9 + 6 = 94 5. Value Area Low = $2148 6. Value Area High = 2158
As I talk about a lot on the EminiMind blog, it’s the first 60-mins of trading sets the tone of the day and gives us an upper and lower price range to use as a reference point for the day. In market profile this first hours range is known as the initial balance. A wide initial balance (or opening range) suggests that prices will stay within that range and we will most likely chop around from the lower end to the upper end of the range, back and forth all day. When prices go above or below the initial range, this is known as a range extension often seen exaggerated on trend days. Sometimes, price will only stay at a given price level for one TPO print, this is known as a single print buying/selling tail.Normal Day – a wide initial balance and a relatively balanced marketNormal Variation of a Normal Day (Most Common) – Most activity occurs during the initial balance with a small range extension, usually depicted as nice smooth bell curve.Trend Day – Prices are constantly moving in one direction. On a trend day we typically see 5 or less TPOs per row.Double-Distribution Day – Typically a double-distribution day starts out as a trend day and forms a second balance or equilibrium area.
When we look at Market Profile, we want to compare the developing profile (today’s price action) to that of the prior day’s profile. You can likely spot a trend forming, by looking at the movement of the value area. If the POC and value area are moving in the same direction day after day, it is a clear sign that we are trending. When the POC begins to move sideways, line up with the previous POC or we trade mostly within the prior day’s value area it is a sign that the trend is either changing, or that no trend exists and we’re moving sideways. When we open above value and volume is strong (or increasing) that tells us that higher prices are being accepted. When we open above value and volume is weak, that’s a sign we will likely fall back down into value. The same is true for opening below value. Strong volume indicates prices being accepted, light volume is a sign that we won’t be spending much time at that level.Time Price Opportunity (TPO)– The letters assigned to each 30-min time period.Initial Balance– The first hours range.Value Area– Where 70% of the day’s trading took place.Value Area High (VAH)– The upper level of value area.
Market Profile is a way to simplify the market price action and determine the area which traders found to be fair value. While the Market Profile is not an entry and exit method in itself, we can use it as a gauge of market sentiment to determine what levels are likely to see lots of action, and to identify early on what type of day is forming. Like this post? I’d love a retweet. Share your thoughts below!
Market profile charts are convenient tools that can be used by both short-term investors and long-term traders. They're typically based on price and volume information, combining these factors in a way that displays price, volume, and time frame on a single chart. These data then indicate the value area and points of control for a stock.
´Traditional Market Profile (MP): «CitfTPOithf fltt tht t30Consists of TPOs in the form of letters that represent 30- minute increments of time but offset to the left and in the shape of a histogram «IsnotatradingsystemormethodologyMPissimplyaIs not a trading system or methodology. MP is simply a way of organizing data