Basics of Market Profile Technical Analysis
It is the cycle in which the markets move up and down through various stages such as Accumulation – Mark Up – Distribution – Mark Down and sometimes the intervening stages of Re-accumulation and Re-distribution.
Auction Market Theory proposes that all financial markets work like an auction. That the price will move higher in search of sellers and price will move down in search of buyers.
Once the price has move low enough to uncover buying strong enough to stop the down auction, a new auction up will begin.
Market Profile Charts can be used effectively along with AMT principles to trade low risk opportunities in financial markets.
Market Profile is a way of organizing data. It organizes data in such a way that it reveals various AMT principles in real time.
In a MP chart the regular bars and candlesticks are replaced by letters (one letter for each 30 min bar is the most common setting). These letters are then collapsed on to the price axis to give it a distinct shape, which sometimes resembles a bell curve.
- When prices open inside yesterday’s range, we call it Open Inside Range.
- The range development potential is limited.
- When prices open outside yesterday’s range, we call it Open Outside Range.
- In this scenario the range development tends to be wide, and dynamic moves can be expected.
- The range of the first 2 bars or first 2, 30 min periods form the initial balance.
- When price probes a reference and get rejected in the same time period we get a tail.
- Tails show end of one auction and start of another.
- Sometimes tails are also classified as excess.
- Sometimes the profile is not smooth and has ragged edges to it.
- These ragged edges are called anomalies.
- Anomalies denote forcing action.
- Forcing Action
- It means that every time the opposing activity increases the traders with the original trend over power them.
- This leads to anomalies and multiple distributions in a profile.
- Forcing action is liable to retracement.