Market Profile

Are you nervous if you, as an off-floor trader, can compete with other traders? To get rid of your worries, start using Market Profile. It is an excellent tool to acquire knowledge of the market and comprehend the market attitude. You can check on the price changes in the market and understand the prevailing order in the market. This article will discuss the Market Profile and its basics that will help anyone who wishes to embark on the journey of trading.

What is Market Profile?

Developed in the 1980s by J. Peter Steidlmayer in association with the Chicago Board of Trade, Market Profile provides an adequately organized structure of data to new in this field. It is a tool that enables the off-floor trader to have an understanding of the market, the dominators of the market, and the direction of price movement. To ensure a trader positions his trades effectively, using and understanding the Market Profile is essential.

Importance of Market Profile

Beginners need to understand that Market Profile can be used as a graphical tool.

• After understanding the market context, one has to use a Market Profile to have a clear conception of the trading context. Then, the observations can be incorporated into the trading strategies prior its implementation.
• To trade at a professional level, a trader has to regulate the trading expectations. The person also needs to have a clear idea of trade and risk management. By utilizing Market Profile, the trader can modify his concept as per the changes in trading context and market direction.
• With the aid of a Market Profile, a trader can easily make important decisions and understand the possible trading effects by using a combination of indicators.
• To get insights into marketing and design a trading framework, using Market Profile is of utmost necessity. It will also benefit you as you will be completely insulated from the outer noise and cognitive prejudice.
• A trader accomplishes finding solutions to situations of sheer crisis in the market by using a Market Profile
• Automation of the market profile strategies is not possible. The market is constantly on a change and, along with it, changes the visual regulations. Market Profile empowers the traders to take important trading decisions by assessing both the past and present information.
• Traders gain a basic understanding of the market using the Market Profile. For instance, you get a vivid explanation of the current situation of the market, the reasoning of the implementation of a particular step and the time when such a move was taken, the target of the price movement, and a knowledge of the marketing participants.
• Learning the Market Profile and putting ceaseless efforts and constant practice into this realm will fetch you outstanding results. No doubt, you’ll have a clear picture of the trading lifestyle.

Market Profile Structure

The structure of the Market Profile is constructed based on the standard distribution curve. Therefore, 70% of the values lie in one standard deviation. Consequently, you can obtain the Market Profile structure by simply rotating the normal distribution curve.

The twisted patterns of the price distribution help the traders to identify the areas where the trades are taking place most. In addition, checking the price distribution over time provides insights into what is fair and not. In this way, the areas of good trading opportunities can also be identified.

Close observation of the Market Profile aids in understanding the key players who are controlling the market and the direction in which it will move. In a Market Profile, the first hour of trading provides a generalized setting for the traders to view the trading scopes. Thus, one gets a grasp of the floor traders’ activities and the agreed price for trading.

The range implies the height of the Market Profile starting from the highest point to the lowest point. When prices go either above or below the initial balance, it is called range extension. Understanding the Value Range Area is essential. The price range where about 70% of the trading occurs, that is, one standard deviation from the mean, can be called Value Range Area. A bell curve is obtained and displays the usual acceptance level of a particular price range. It is essential to know the closing price as this will give the traders a point of reference for the opening activity of the next day.

Since Value Area is essential, it becomes imperative to know how it can be calculated using volume or Time Price Opportunity (TPO). Specific steps are needed to be followed in case of calculation using TPO. Firstly, one has to count the total number of TPOs inclusive of the single prints. Now, 70% of this obtained number has to be calculated. The next step requires calculating point of control. For added information, the longest line of TPOs that lies closest to the center of the range gives the point of control. Finally, the TPO has to be counted after the calculation of the point of control. The obtained TPOs of the prices, lying one above and one below the control point, have to be added. Then, among the two, the TPO having the more significant value has to be added to the TPOs of the point of control. This process has to be repeated until the total number of counted TPOs succeeds in reaching precisely 70% of the total number of TPOs. If you want to calculate the value area by using volume, the same formula can be applied to get the result.

Conclusion

Monitoring the market activities and knowledge of the varied other ongoing events in trading can be obtained using the Market Profile. If you want to kick-start your trading career, start taking an interest in studying about it.