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What is a market profile?
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- 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!
The Value Area is a measure of where heavy trading volume takes place and is used in trading to determine potential areas of support and resistance. When trying to find clues to market sentiment in historical price charts, first check out the previous day's trade.
In this section we study the Opening of the Profile with respect to the Value Area to gauge the Strength in the market.************🔔🔔 VWAP Trading ONLINE C...
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Market Profile is a professional instrument for analysis of trading volumes on the exchange. If you are new to this subject, we recommend you to read the article on basics of the Market Profile. More advanced information goes below. We assume that you know already what Value Area (VA), Point Of Control (POC) and Initial Balance (IB) are.
The Value Area is the area that represents 70% of the profile or the first standard deviation in the profile. It’s considered the range of prices where ‘market value’ can be found. Value indicating by first standard deviation of the profile.
A Profile chart is a bell curve view of stock market activity. It shows a distribution of prices, as opposed to a linear timeline of prices. Prices that have received the most attention and action from traders will create larger sections of the curve. It will form a histogram.
Jul 13, 2015 · Value Area : Value Area is the fair price zone where the Other Timeframe Players (Long Term players and Shorter Term Players) loves to trade in this zone. 70% of the day’s trading happens here. Value Area High (VAH) – The upper level of value area. (upper Red Bracket Level). YVAH – Yesterday’s value area high is marked as Red Dotted Line.
The 80 Percent rule is the most popular Market Profile / Value area trading strategy, 1st mentioned in The Profile Reports (Dalton Capital Management 1987-1991), which states that If the Market opens above or below the Value area and then trades within the value area for two consecutive brackets (Open or close of 2 consecutive Half hour period within the value area), then it has 80% chance of auctioning through the entire value area.
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