[Soultrader]

This is a method used to calculate the value area.

Source: Mind over Markets

"First identify the price at which the greatest volume occurred. Then, sum the volumes occurring at the two prices directly above the high-volume price and compare it to the total volume of the two prices below the high-volume price. The dual price total with the highest volume becomes part of the value area. This process continues until 70% of the volume is reached."

For those who have no idea what that meant, take a look at the excel attachment below:

In the excel file, the greatest volume (2500) occurred at price 110. The total volume for the two prices above 110 is 3600 (sum of dual prices) and the two price total below is 3000. Since the upper total is greater, it is added to the high-volume price as part of the value area. The same process is repeated, comparing the next two lower prices 111 & 112 to 106 & 107again.

The upper total (106 & 107) is higher so it is added to the value area. Then you take 111 & 112 and compare it to 104 & 105. Since the lower total is higher (111 & 112) this is added to the value area. You repeat this process until the combined volume reaches 70% of the day's total volume.

Your value high pivot would be 116
Your value low pivot would be 104

[testaclese]

Hello Soultrader,

I assume this can be used on the Russell as well? Still learnin'.

[Soultrader]

Yes testaclese. Market Profile can be used in most financial instruments.

[testaclese]

Thank you.

[Northern boy]

Hey Soultrader. I like how you approach the market. I don't believe in moving averages or any tinkering of raw information. It seems to me that you can attribute a quantitative probabilistic outcome to using different points in the value area. For example the odds of reversal could be calculated based on the volume at each price as a fraction to the day's total volume. Have you tried this?

second question, how effective is this strategy for you? you seem to be confident in it and it makes sense.

I'll be looking for Dalton's book.. any other recommended reads? Thank you for all your videos and posts, much appreciated.

[Northern boy]

I used this stock because of its volatility in price and volume. It's a tool available at www.stockcharts.com, although it isn't available for intra day. Mind you the last break out was from a corporate buy-in and not public buying.

[achau]

One point I don't understand is why we work on 2 price above and below each time. If we work on 1 price each time, we can get a result closer to 70%. Can anyone help me understand this?

[LS_Chad]

Good point achau. When you find that 2 prices will exceed 70%, you should take a step back and see if 1 price would have sufficed. Some programs do operate that way.

As to why the logic was originally designed to look at two prices at a time...I really don't know the answer to that....but my guess would be, in situations of double-distributions, looking at two prices might have helped the value area work it's way into that second distribution quicker (and get past a single price, with very low volume, which it would not have if looking at 1 price at a time).