What is the Market Profile – Tutorial

The Market Profile was developed in the eighties by Peter Steidlmayer. Steidlmayer was a trader on the Chicago Board of Trade (CBOT).

He was looking for a way to get a deeper insight into the markets than was previously possible with normal charts. This was the birth of the Market Profile.

See a picture of the Market Profile:

Market Profile

Initially, the Market Profile was only used by traders on the CBOT until it was gradually made more and more available to the public.

Outside the U.S. it is still quite unknown despite its long existence.

The structure of the Market Profile Chart

In most charts, the price level is plotted. With the Market Profile, however, the time intervals (e.g. 30 minutes) are shown. This allows a quick and easy determination of the important trading levels of the day. This is because you can see where prices have been during the day and which levels were considered “fair” by the market.

The distribution of the price level is calculated using the normal distribution and amounts to 70%.

At first glance, the Market Profile looks a bit confusing. But at a second glance, the Market Profile can be used to quickly draw good conclusions about the observed market.

You can see here a trading week in E-Mini S&P Future:

ES Future – Market Profile of the week

Note: The Market Profile charts in this article are taken from the ATAS chart software.

Our tip: use a professional software for futures trading

We recommend to use the software ATAS (advanced time and sales) for trading with futures.

  • Free test version
  • Orderbook (smart DOM & tape)
  • Footprint Charts
  • Market Profiles
  • Customized indicators
  • All chart types
  • Perfect for order flow reading
  • Our review: 5 out of 5 stars (5 / 5)

Read the full ATAS review

The individual daily profiles each depict one trading day. In this example they are divided into 30 minute intervals.

The most important information of a Market Profile is as follows:

  • The POC (Point of Control) shows the level at which the price has been held for the longest time.
  • The VPOC (Volume Point of Control) shows the level at which most volume was traded.
  • The VA (Value Area) shows the price interval at which at least 70% of the transactions took place.
  • (The Value Area for the volume shows the area where at least 70% of the daily volume was traded).
  • The initial interval (blue vertical line) shows the price interval in which the first two time periods took place (A and B). This is also called OB (Opening Balance).
  • The unfair high indicates the overvalued price zone
  • The unfair low indicates the undervalued price zone
  • The opening price (green triangle)
  • The closing price (blue triangle)

The trading days are divided into time intervals. In this example, time intervals of 30 minutes each.

Time Price Opportunities (TPOs) are represented by letters. TPOs are a representation between the time period and price range. Each TPO represents a trading opportunity at a fixed price.

See the detailed look into the Market Profile with 30 minute chart:

The first 30 minutes are therefore marked with an A. The next 30 minutes are marked with a B, and so on. The first period is thus marked with an A and represents the first 30 minutes of the opening of trading. Together with the second period, this is called the Initial Interval or OB (Opening Balance). The more identical letters there are, the more price segments were traded within a period. In addition to the capital letters, small letters have also been added. This means that markets could also be displayed that have a longer trading time than was originally the case on CBOT.

The Market Profile now assumes that the prices, which are in the normal distribution of 70%, are to be considered fair. This area is also known as the VA (Value Area). This means that the market finds itself in balance in this area. The buyer and seller are balanced here. The normal distribution can also be applied to the volume. A VA can also be seen here. This describes the area in which at least 70% of the daily volume has taken place.

The area above the VA is also called unfair high. The market is not in balance here, and this zone is also called the overvalued price zone. The counterpart of this is the unfair low. This zone is also called the undervalued price zone. Here too, the market is no longer in balance. The market participants reject these prices and usually try to get back into the VA.

At the Point of Control (POC), there are two types. On the one hand, this can result from the letter. The POC is then the point at which the price has stayed for the longest time. The second type is the Volume Point of Control (VPOC). This is the point where most trading volume took place. These two points can often be identical, but can also be different. In our example, they are very close to each other but are not identical.

The high and low points of a profile, which consist of only one letter, are called “single print buying tails” and “single print selling tails”.

The profile types of the Market Profile

Normal Day (D profile)

Market Profile (D Profil)

Here the VA, like the POC, is close to the middle of the market profile, and often the range for the day is already formed in the first two trading hours. This is often the case with news at the beginning of the market or due to a too positive (negative) market sentiment. The market profile is quite balanced here, but a broader OB is available. Above and below the Value Area there are often single prints. This means that the price has only stayed here for a very short time. So with this market structure, nobody is in control and the CRV for day traders is very good, especially at the extreme points. That means, the wider the range, the higher the possible CRV for daytraders.

Normal Variation Day (b or p profile)

Market Profile (P Profile)

If most of the momentum occurs later in the trading day, it is also called Normal Variation Day. This is a market profile that is not in balance. The day is dominated by long-term players (buyers or sellers). They wait until the market calms down a bit and then determine what price they consider “fair” and then take control of the market. This leads to a breakout of the OB. Ideally, the range of the outbreak is two times greater than that of the OB.

Trend Day (I or l profile)

Market Profile (l profile)

A trend day is also a market profile where the market is not in balance. Here, the trading day is again dominated by the long-term players. In a perfect trend day, the sequence of letters in an uptrend looks as follows: Low from the letter A > B > C > D and so on. In a downtrend, the sequence is as follows: High from the letter A < B < C < D. Of course, there can always be overlaps between the individual letters. The profile here is usually rather narrow and there are few price rotations on a level. TPOs here are rarely above five. The VA is often very large on trend days. This usually results in the best CRV’s for day traders.

Double Distribution Day (B Profile)

Market Profile (B Profile)

This is also an unbalanced market profile. The OB is small and the first area that is in balance is formed here. Then long-term players take over again and this leads the price in another direction of the current normal distribution. The movement into the other

Neutral Day

On a neutral day, the profile is in balance. Here the OB is smaller than on a normal day. The extremely small trading range can often be observed before holidays or the publication of important economic data.

If the price closes in the center or balance, this is called the Neutral Profile Center.

On the other hand, when the price closes near one extreme point of the profile, this is called the Neutral Day Extreme.

P Profile

P profiles are e.g. days on which a short covering takes place. The letters A or B form the floor with single prints in the OB. The market then forms a value area above the opening.

Proactive behaviour or reaction

The Market Profile roughly divides the market participants into three groups:

  • long-term players
  • short-term actors

Tips day traders of futures

Long-term players have a certain opinion about the market and are able to implement this opinion by making appropriate trading decisions. They are the only market participants who are able to trigger new trends.

Day traders are not interested in long term positions or have no specific opinion about the market. They simply follow the trend or try to find imbalances. If the market is dominated by short-term players and day traders, this often implies sideways phases.

It is always a matter of asking yourself the following questions:

  • Who is currently in control?
  • Are there other players?
  • What is the market trying to do? In which direction is the market trying to move?
  • Is the market successful/efficient?
  • What are the important levels the market will try to test or revisit?

In addition, it is important to differentiate between proactive behavior (buying or selling) and just reacting at a certain level. Usually, proactive behavior is a more aggressive reaction. It is also important to distinguish whether the predominant buying behavior takes place above or below yesterday’s Value Area. Initiative Buyers (sellers) appear above (below) yesterday’s Value Area and usually have a greater conviction in their actions than reacting buyers (sellers) who have only waited for an opportunity (reaction) to enter.

If the market is outside the previous day’s value area, the trader’s biggest challenge is to determine whether this instability is resolved by returning to the value area or whether the trend continues.

Conclusion on the use of the Market Profile

The Market Profile is not an indicator in the classical sense. The Market Profile provides a good insight into the market, which is not available with a classic chart. But on the other hand, the questions asked above can also be “answered” with a normal chart. Nevertheless, it can be useful for many traders to take a closer look at the Market Profile. Even if it looks a bit confusing at first glance, it can be easily understood and applied after a short training period.

Our tip: use a professional software for futures trading

We recommend to use the software ATAS (advanced time and sales) for trading with futures.

  • Free test version
  • Orderbook (smart DOM & tape)
  • Footprint Charts
  • Market Profiles
  • Customized indicators
  • All chart types
  • Perfect for order flow reading
  • Our review: 5 out of 5 stars (5 / 5)

Read the full ATAS review

Read my other articles about futures:

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