Market Profile 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 and the methods of trading. Let’s start with the simple definition of the technique.
Market Profile Trading-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:
As you can see in the above image 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. 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, TPO or Time Price Opportunity is required. 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. TPOs value area is calculated 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.
Therefore, it determines the fair price value and shows the correct price action in the market. 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. Besides this, you can go through our other article on market profile in the StockManiac site.