What is Market Profile ?
A Market Profile is an charting technique conceived by J. Peter Steidlmayer, a trader at the Chicago Board of Trade (CBOT), during 1959-1985. Market Profile is not a trading system but a market generated information and a decision supportive system. It provides you knowledge about who is in control in the market (Long Term Investors, Short Term Traders, Day Traders). Market Profile gives an idea to a day trader, about where to take a trade and which trend to play for the day based on trend conviction. The basic auction process is recorded by the Market Profile is known as TPO, or “time-price opportunity.” The three components of the TPO are Price, Time and Volume.
The above information is combined and displayed as a profile on a chart. It graphically conveys complex information to reflect a composite, broad perspective of the market as a whole. As traders, we have the ability to more precisely observe the flow of the market’s auctions through this useful tool. Market Profile determine amount of time, number of ticks and volume traded at specific price levels or price ranges during a period. It then identifies prices perceived as fair by the market and also identify support and resistance levels to anticipate future price movements. By reading the market-generated information one can learn who is in control in the market (Buyers or Sellers) and how much confident they are in driving the prices higher or lower. It also helps a day trader to stay away from the retail style crowd play most of the time. Market Profile data captures and continuously updates the market information in an comprehensive informative manner. In a nutshell, Market profile charts are one of the best analysis tool based on price and volume information of a stock/ index and have an edge over other forms of chart analysis.