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Getting to that level of knowledge requires building enough experience with conventional information so that you can make it your own. This is what eventually leads to the refined thinking skills required to navigate the markets on the short term. There are many topics that I am very familiar with that don’t have any immediate use in my trading.
One concept that Market Profile emphasized for me is the difference between a balanced market, and one that is imbalanced. I have experimented with it, but haven’t been able to incorporate it into my methodology to produce any meaningful results.
It’s important to distinguish between market profiling, which is Time at Price, vs volume profiling, which is Volume at Price. With more use, especially the use of composites, volume profiling can also teach about rotations around price and provides targets for retraces and extensions. I primarily trade E-mini and 6E futures, though my 6E trading is more mechanical than discretionary. Our traders have developed a trading method that exploits our Financial Algorithms partner’s Market Profile® style TPO Chart indicator that plots prior and unfolding value areas. It is amazing to see how price respectfully fluctuates between these regions back and forth, day after day. Typically the 1st upper standard deviation lines provide resistance with the lower standard deviation lines providing support.
All our registered clients are given exclusive access to download the powerful Market Matrix software that we talk about in our Hedge Fund Mindset Workshop. We have partnered with some of the major players in the trading industry and so we are delighted to offer our registered clients significant discounts on trading related products and services. Our clients have access to Market Data containing Market Profile® Trading KRAs for low risk and high probability trade location entries.
FULL RISK DISCLOSURE: Futures and forex trading contains substantial risk and is not for every investor. Every off-floor trader would like to get a feel for how things really are on the exchange floor. The concept of Market Profile stems from the idea that markets have a form of organization determined by time, price, and volume. Market Profile is based on the normal distribution curve, wherein approximately 70% of the values fall within one standard deviation of the average. A normal distribution curve assumes that the number of occurrences follow a bell-shaped curve.
Monitoring price distribution over time gives insight into what levels are considered fair and unfair.
If, on the other hand, prices diverge from the value area with increasing trading activity, that indicates market participants are reevaluating their idea of value.
The development of Market Profile can be seen during the course of the trading day in Figure 2. The first hour of trading sets the general pattern for the day and is your first opportunity to view market activity.
The initial balance is the price range of market activity during the first hour (the first two time periods). The price range where 70% of the trading activity takes place, one standard deviation from the mean, is the value area. Now that you know how a profile develops, it’s time to examine the different types of days you might encounter.
It is equally important to determine whether the buyer or seller is in control in the early trading hours.
The normal day is characterized by a wide initial balance, which indicates that the other-timeframe trader entered the market early. A more common occurrence is the “normal” variation of a normal day, which is also identified by activity during the early hours of trading. If you detect the formation of the double-distribution day early, you can take advantage of some great trading opportunities. After you gain some experience in analyzing Market Profile, you should be able to recognize the different types of days and predict the direction of the price. Market Profile, you will be able to visually determine the price levels at which the markets are in equilibrium. The auctioning process in the markets is similar to that of any business: supply and demand.
Traders react differently to prices at different times, so it is important to recognize the type of activity that is taking place. To determine which activity is taking place, you must compare the current day’s profile to that of the previous day (Figure 10). When the value area steadily moves in one direction, this means that the movement in price is being accepted.
To determine whether a market is bracketing or trending, I find it useful to combine Market Profile with moving averages. Market Profile reveals several factors that provide you with an idea of the trading activity taking place in the markets.
The moving average crossover methodology does a good job of indicating the trend direction and revealing good trading points. Since the close was above the value area, the profile of August 24 suggests that prices were likely to rise, which is precisely what happened.
The bar chart on Figure 11 shows that prices decreased sharply after August 26, 1999, suggesting that they hit a resistance level.
One thing I tell new traders is if you want to become an expert in this game, you must have a strong interest in every aspect of the game. No, but I utilize concepts that I would not have known about if I didn’t spend time reading the books and experimenting with it in real time. Steidlmayer developed market profile at a time where is was impossible given the current computational power to use volume at price.
When viewing high volume and low volume nodes as support and resistance, don’t give them equal weighting or assume that price will behave the same around them.
My tendency since has been towards simplification and now use mainly different time frames, and inflection points based on trend lines, consolidations and spikes. Please note: Hypothetical computer simulated performance results are believed to be accurately presented. They have developed an indicator that provides you with what is equivalent to a real-time value area in the form of the volume weighted average price and standard deviations from this average price. This is why we make these key levels avaialable daily in the Market Data area on our website. Note how the price interacts and extends beyond the VWAP testing the 1st upper standard deviation. This is even more evident when examined on an order flow footprint chart like the one our clients observe during our Live Trading Room session.
Clients can also download our Pro Trading Journal that our own traders use for detailed logging of trades. Peter Steidlmayer developed Market Profile in the 1980s in conjunction with the Chicago Board of Trade.


The indicator can help the off-floor trader get a better sense of the market; prior to the introduction of Market Profile, only floor traders had access to this information. Each day, the market will develop a range for the day and a value area, which represents an equilibrium point where there are an equal number of buyers and sellers.
If you rotate the normal distribution curve so that price is along the vertical axis and time on the horizontal axis (as shown in Figure 1), you have the structure of Market Profile.
Anyone who has traded in the markets, however, knows that prices never follow a definite pattern; in fact, you rarely see a normal distribution. If prices move away from the value area but volume starts to dry up, it is likely that prices will move back to the value area. By observing market activity through Market Profile, you can get a grasp of who is in control of the market and determine which way the market is likely to move. Market Profile is made up of time price opportunities (Tpos), which are represented by letters. This period is important for determining what the floor traders are doing; those traders are trying to find a price at which both the buyer and seller agree to make a trade. There are several types of profiles, and you should be able to recognize the shapes associated with the different types of days.
Some off-floor traders prefer to wait till the third time period before making any trades, because during this period, you may see the development of a value area and extension of prices beyond the initial balance, both providing clues as to what type of day is developing. This is usually due to the release of major news that suggests either bullish or bearish signals. What makes this different from a normal day is that the other-timeframe trader enters the market after standing on the sidelines for a while.
You will be able to identify this by a very narrow trading range with a wide profile (Figure 7); no evidence of a range extension is apparent.
In this case, as the name suggests, there is not much difference in the perception of value between buyers and sellers. After you understand how to recognize the different days, you will need to put it all in perspective to see what Market Profile reveals and how traders can benefit from it. You will also understand who is in control at any given time and recognize when that control shifts. In the futures pits, when other-timeframe buyers and sellers conduct a transaction, the process goes through a middleman or the day-timeframe trader.
There are two broad categories of buying and selling activities known as initiative and responsive. If traders take the initiative to move prices higher or lower than the previous day’s value area, the action indicates that the activity is initiative. If it moves in one clear direction, either up or down, you know that the market is in a trend. If, however, the value area is overlapping the previous value area, you can conclude that the trend is slowing down and starting to find balance. Figure 11 shows a bar chart of the September 1999 Treasury bond contracts with an overlay of the five and 10-day moving averages and Market Profile of August 24 to 26, 1999. Monitoring the market action will enable you to determine the type of day that is developing, whether a price trend has started, what the value area is, the type of activity (initiative or responsive) taking place, whether the activity is continuing or changing from the previous day, and whether the market is trending or bracketing. A professional and consistent trader is one who is usually informed in a way that goes against the conventional.
You should be enthusiastic about learning techniques or philosophies that will offer no immediate value to your trading.
He created this way of looking at prices to better evaluate market value as it developed throughout the trading day.
This constant pursuit of knowledge is what being “passionate about the markets” is all about.
I see traders stabbing, stabbing, stabbing at reversals, then when the trade actually works, mentally needing to bail quickly to keep their profit and ego. Paying audiences, just like Mother Market, are indifferent to the best of your intentions and efforts. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. No information presented constitutes a recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice.
Risk capital is money that can be lost without jeopardizing ones financial security or lifestyle. Traders who use it say that they get an in-depth understanding of the market, contributing to improved trading. It organizes the data so that you can understand who is in control of the market, what is perceived as fair value, and the direction of the price move. Although all references here refer to using futures contracts, Market Profile can be used just as effectively for other tradables.
What you do see are skewed distribution of prices, which makes it possible to see the price at which most of the trades actually took place. Such a movement indicates that sellers are not happy that prices are below value and buyers are not happy that prices are above value. Each letter represents one half-hour of the trading day (but beware that the letters used to represent time periods are not consistent across vendors). There are two broad categories of market participants: the day-timeframe trader and the other-timeframe trader. In H, the seller entered again and held control till the close, as can be seen by the activity during I and J periods. In this example, the range extends below the initial balance, indicating a seller range extension. Calculation of this area is covered in more detail in the sidebar, “Value area calculation.” This is where the bell curve comes in. This is where most of the trading activity took place and is considered to be a fair value for the trading day.
The closing price is important because you need it as a reference point for the following day’s opening activity.
If the development is not clear at this point, it is a good idea to stand on the sidelines and wait. During the remainder of the trading day, the other-timeframe buyers and sellers trade back and forth and the market remains relatively balanced. Note in Figure 4 how, during the fourth time period (represented by G), the range is extended beyond the initial balance. The initial balance is represented by the B and C Tpos and is relatively narrow, which means that the other timeframe participant has not entered the market. They are usually single prints, but if you notice them changing to double prints later during the trading day, it is an indication that price levels are not being sustained at the second distribution; they are, in fact, moving back to the first distribution. You can see that both buyers and sellers are active by the range extensions on either side of the initial balance.
This gives you an edge in making good trading decisions, alerting you to the possibility of a shift in the perception of value. If there is an imbalance between supply and demand, it is the floor trader who must bear the brunt.


Differentiating between the two is important, and the structure of Market Profile will provide clues to the type of activity taking place. If, on the other hand, selling activity is dominant when prices are higher than the previous day’s value area, or buying activity prominent when prices are lower, you can conclude that responsive activity is taking place. A bracketed market is one in which prices move back and forth between two price levels that act as support and resistance. The crossover of the moving averages that took place on August 24 in September T-bonds indicated a sell signal.
The profile of August 25 has a higher value area and a wider range than that of the previous day. Combining Market Profile with indicators such as moving averages can help you create a successful trading strategy. I may not be able to use the profile graphic in my trading, but I have gained an enormous understanding of price behavior. So the next time you come across a magazine article, book or blog post related to trading, read it and add that one new piece of information to your foundation. You are as good as your last gig and when that was bad … Imagine going on stage night after night to booing, hissing and torrents of abuse.
You shall be fully responsible for any investment decision you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.
The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading.
Once you start using Market Profile, however, you may find yourself with more information than the floor trader. It is possible to extract enough information from Market Profile for you to position your trades more advantageously. They are constantly diverging, and Market Profile records this activity for traders to interpret. This provides significant clues about the direction of prices and is the groundwork for understanding Market Profile.
In the example in Figure 2, the periods are represented with letters A to J, with A being the first half-hour. The floor trader is referred to as the day-timeframe trader and all others as other-timeframe. A wide initial balance suggests that prices will stay within the range, whereas a narrow one suggests that prices may extend beyond it.
Since both are very short — only three letters — the response from the other-timeframe traders was very strong.
This indicates that the other-timeframe has found an opportune price level and entered the market aggressively.
Figure 5 gives an example of a standard trend day; price is consistently rising and there is no interest in moving it in the opposite direction. The other-timeframe buyers enter the market aggressively during F because they believe prices are below value. What may be happening here is that traders are waiting for either a news event or an economic release, or it could just be a day prior to a holiday. It combines price, volume, and time and organizes those factors into a form that you will be able to recognize. For example, if there are more other-timeframe sellers than buyers, the floor trader will be faced with a situation where there is an increased supply but not enough demand to dispose of the contracts.
Comparing the current day’s profile to those of previous days enables the market participant to recognize the changes from one day to the next and observe changes in market participation and attempted divergence of price from value. However, with Market Profile, we can observe that the sell signal came too early; the profile does not indicate that the sellers are in control. It is this understanding that helps me interpret price action as it unfolds, and allows me to adjust my expectations appropriately.
I also learned that the more time price spends at a particular level, the more significant that level is.
Price will enter, but it will rotate around these nodes more slowly since there is perceived value there.
No longer will floor traders, decked out in their colored jackets, frantically gesturing and scrambling to make themselves heard and seen by other traders, seem chaotic, intimidating, or bizarre.
The latter trader type provides market direction by moving prices to new levels, whereas the former is interested in trading large volumes on few ticks. The buying tail represented by the three I periods shows that the other-timeframe buyer responded quickly to lower prices. As mentioned previously, it is rare to find a normal distribution in Market Profile, and hence a “normal” day is not particularly normal. During the remainder of the day, trading activity occurs between the other-timeframe and day-timeframe traders.
The close is in the middle of the range, indicating that there is a balance between the buyer and seller. A tick chart gives you an idea of the relationship between price and volume at a specific time. In order to restore the equilibrium between the buyers and sellers, prices will have to be reduced to the point where they will attract buying activity. Such an approach will provide clues about whether the market action is occurring in a trending or bracketing (trading range) market and reveal whether movement is likely to be met with acceptance or rejection. Conversely, when price reaches the bottom of the bracket, the buyer responds by driving them up. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commissions.
If the price range falls outside the the range set by the initial balance, there is the suspicion that the other-timeframe trader has entered the market and tried to move prices away from the area of balance. Conversely, the three Bs at the top of the profile indicates that the other-timeframe sellers responded quickly when the prices were above value. Trading between buyers and sellers occurs at this stage, and a new balance level is established.
In Figure 8, you can see that the profile of the September 1999 Treasury bond contracts, which traded on August 26, 1999, was followed by a downward trend.
If, however, the close was near either extreme, it may mean that the buyer (if it closed toward the top) or seller (if it closed toward the bottom) is in control. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. When price moves away from this area, and happens to revisit it, this area becomes a very important potential turning point. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown.



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