Market Profile Chart Trading is quite different from classical technical indicators. It was developed by a trader at CBOT (Chicago Board of Trade), J. Peter Steidlmayer. It was first introduced to the public in the year 1985. Though it was introduced decades ago, traders find it difficult to understand even until now. Today’s article will cover the basic concept regarding Market Profile charts and the methods of trading. Let’s start with the simple definition of the technique.
Market Profile Charts – Definition
Unlike other technical indicators, it requires keen surveying and a parallel studying to identify the real-time data regarding trade. The technique is generally applicable for intraday trading. Each day’s trading session is included in this chart. By applying this, one can determine the controller of the market, buyer or seller. It assembles a series of data that represents where price traded throughout the day.
Market Profile Structure and Method
In order to clarify the pattern easily, a set of images are given below:
MP Trading Components
As you can see in the image below that the market profile trading chart looks exactly like a curved bell-shaped which carries some unique features. In this pictorial representation, the vertical space refers to as price area while the horizontal zone shows time. Each and every day the market originates a range for the day along with the value area. The volume key plays a significant role here in the market profile. Value area consists of two segments, the upper level of the value area refers to as Value Area High while Value Area Low is the lower level of the value area.
To understand the Market profile trading, you require TPO or Time Price Opportunity. You can say that these three parts are the pillar of the chart technique. Here in this chart, each letter represents half an hour or 30 min duration of every trading session. You can calculate the TPOs value area by using 70% of the days’ data.
It represents buying-selling tail, value area with the point of control and closing range with closing price. As I have mentioned earlier that each letter shows 30 min data, let’s look at an example here, A- 8.00-8.29, B- 8.30-8.59, C- 9.00-9.29 and so on.
How to Understand a Market Profile Chart
So, Market profile charts present the price on a vertical scale just like other graphical charts. The volume present on a horizontal scale and on the other side, the timeframe uses a combination of letters and colors. However, understanding the price is simply straightforward but the volume and time frame parts are way more complicated.
- Price: MP charts present the price in the same manner as other intraday charts. The price scale is displayed on the right side of the particular chart.
- Volume: The volume on a market profile chart appears as a horizontal histogram along with the longest horizontal lines. It is showing the biggest amount of volume. This implies that the price that has the longest horizontal line is the price. There the maximum portion of the volume has been traded. The price also refers to the point of control because of the price that had control of the market most of the time.
- Time Frame: The time frame on a market profile chart uses letters and colors. Each letter means one unit of the time frame, for example, we can say like 5 minutes or 1 hour. Each of the colors also represents one unit of the time frame while colors are used. A 15-minute chart uses colored squares, each of them represents 15 minutes of the trading frame. Any trader can easily see in which prices have been traded most recently if he knows the recent color here.
Download Market Profile For Amibroker
Therefore, the technique is a way to simplify the price action of the market. It also determines the are of fair price value. You can download the AmiBbroker AFL from the link below. Please check below to know how the Amibroker AFL looks like.
The AFL will work on recent versions of AmiBroker. This technical indicator is best suited on intraday charts. Read more about MP before applying it to real accounts.
Trading with an MP Chart
Market profile charts can be applied as a complete trading system. Besides this, it can also be explained as part of a larger trading system that also uses other technical charts. On the other way, market profile charts are generally traded depend on the support and resistance. Apart from this, traders can see how the price interacts with the point of control, which would be the most traded price.
An intraday trader might trade bounces off the most recent point of control. Oppositely, a swing or delivery trader might trade breakouts of yesterday’s point of control. With all techniques and methods, by using a market profile chart one can book a huge profit from the market.
Therefore, it determines the fair price value and shows the correct price action in the market. So, if you have an interest in it and want to know more about Market Profile, you can download a 22 web page e-guide book. You can download the file by the link, given here.
So, if we briefly state the features of MP, the following points come out. The Market Profile Trading system
- Determine the amount of time, the number of ticks, as well as volume, trading at a fix price levels or price ranges during a specific period.
- To identify prices that are perceived as fair by the market.
- To identify support and resistance to predict future price movements.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.