Market Profile the technique for successful trading

Market Profile the technique for successful trading VTRENDER.COM

A market profile is an indicator that shows the number of traded contracts at each price level of a trading instrument. If you want to earn money by trading then you must follow a few essential steps they are Observations, studies, and analysis. Stock market speculation has nothing to do with luck but is based on observing trends and developing strategy.

When did the market profile concept start?

The first market profile was shown to the world in 1984. The market profile was developed

by Chicago Mercantile Exchange trader Peter Steidlmeier, who also proposed the concept of a market auction. It was believed that the market develops from balance to trend, and then again to balance, and this cycle is constantly repeated. On the chart, the balance can be recognized by a balanced distribution or a bell-shaped curve.

The basic idea: Every day the market develops a certain range and within it, the value area (area of value), which represents a zone of some equilibrium, where there is an equal number of buyers and sellers.

If prices go beyond the value area, but volumes begin to decline, then there is a possibility that the price will return back to the balance zone. Price movements outside the balance sheet area without significant volumes indicate that the main buyers and sellers are outside the market. The deviation of the price from the balance zone, accompanied by an increase in trading activity, indicates to us that market participants overestimate the existing value.

Popular tool for professionals Market Profile is an analysis chart, which represents price movements in the market. It was designed by J. Peter Steidlmayer in the 80s and popularized in the 90s by J. Dalton. This financial chart represents the evolution of price volumes and prices, thus allowing us to see the trend and better anticipate their future direction. The Market Profile is used by many industry players, including investors and analysts. Whether the trend is bearish, bullish, or in the range, it can provide essential information for decision-makers. The very purpose of this tool is to contribute to the definition of strategies and decision-making. Due to its efficiency, the Market Profile is constantly used by professionals. And, today, more and more individuals are carrying out their analyzes using this tool, which is just as easy to use.

How does that work?

The market profile is presented as a histogram, in which volume areas and price levels are displayed. The VA or Value Area is specifically the area where 70% of trades were recorded during the session. Val (Value Area Low) represents the lowest level, while VAH (Value Area High) represents the highest level. The POC (Point of control) is the price level most frequently used by the course during the session. The IB (Initial Balance) is the characteristic of the price range during the first 60 minutes of quotation and, finally, the FB (Final Balance) represents the price range during the last hour of quotation. The use of the Market Profile is based on these key elements and above all allows you to anticipate the evolution of the price of an asset.

Market profile indicator and Market profile arithmetic According to the original theory, in order to work on the market profile, you need to analyze the chart at a 30-minute time interval. The concept of a market profile assumes that there will be some logical form in the market, which consists of price, time, and volume. Typically, the profile corresponds to the mathematical line of the normal distribution.

Every day the market finds a certain zone, which is called the value zone or value area — you can say, the equilibrium zone, where the number of sellers is equal to the number of buyers. Where the current price of an asset is located relative to the equilibrium zone can give you knowledge of what price level you may consider fair to discard speculative prices.

A basic understanding of what a market profile is, how it works, and how to apply it will come in handy for any market participant, with any level of experience and with any trading style. This indicator is developed by us futures market traders and it provides the trader with incredible information about the current state of market affairs. Previously, such data was not available to a simple trader. In the old days, it was known only to traders with “pits” — exchange halls for live trading. The market profile will give a visual representation of the logic of the market and its structure, which is tied to time, trading volume, and price.

The market profile indicator is not an ordinary indicator of technical analysis. It does not give classic signals to enter and exit the market, the trader will have to analyze the incoming data on his own, and make a decision on the entry and exit point himself. The indicator is practically devoid of disadvantages, it will be useful as an independent CU or an addition to any existing trading system because it gives the trader knowledge about where the equilibrium price level is, and who is now gaining a large position to buy or sell.

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