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[MP] Trading with Market Profile

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Due to the highly successful VSA thread, I would like to also start a thread dedicated entirely for Market Profile that covers definitions, market structures, mp concepts, trade locations, pattern recognition, and more.


Market profile is perhaps used by only a small percentage of traders with very little educational material available for free compared to other technical analysis methodologies. So let's get this thread started!


Recommended Readings


  1. Mind Over Markets: Power Trading with Market Generated Information by James F. Dalton
  2. Steidlmayer on Markets: Trading with Market Profile by Peter J. Steidlmayer
  3. Markets in Profile: Profiting from the Auction Process by James F. Dalton


Things To Keep In Mind


The concepts and terminalogy covered in this thread may require you to have a basic understanding of market profile. There is a free pdf file available from the CBOT which you can download here that brushes this topic but I highly recommend to read the 3 books listed above.


Important terms:


  • Initial Balance (first 60min range)
  • Value High or VAH
  • Value Low or VAL
  • One-time auction
  • Extremes/Rejection


Day Types: Profile Pattern Recognition


1. Nontrend Day:


A nontrend day occurs when there is no conviction by the longer term market participants. Day traders are the only ones providing liquidity with volume being light and range being small. Lack of confidece expressed by the longer term traders causes markets to be contained within the initial balance (first hour range) as an extension of price is less likely. Traders with a view longer then the day trader see no opportunity/advantage at these price levels.


Below are a few examples of a nontrend day.






2. Trend Days (2 types):


Trend Day


A trend day occurs when there is a high level of cofidence expressed throughout the day. Larger time frame market participants must be active in order for any trend day to occur. The market is in full one-time control. One-time control refers to an auction process of continously higher lows/higher highs or lower lows/lower highs. Each 30minute price action will auction higher/lower than the previous 30minute price action. This should continue until the close.


A strong trend day will usually leave the opening price near or at the high/low for the day. Below are a few examples of a trend day.






Double Distribution Trend Day


A double distribution trend day occurs when trading is light during the day followed by a sudden expansion of the initial balance by the longer term market participants later in the session. This one-time activity usually occurs into the afternoon session. This sudden change can be caused through fundamentals, news, economic reports, or just plain supply or demand.


Below are a few examples of a double distribution trend day.






3. Neutral Day


A neutral day occurs when longer term market participants express opposite views amongst each other. In other words, range extension may occur both above and below the initial balance with minimal price change for the day. Both sellers and buyers are present in a neutral day. Because the longer time frame participants do not agree on the same price they trade mainly with the locals or the middleman. In other words, sellers exist above value as they find price to be too expensive while buyers exist below value as they find price attractive. This profile resembles a complete market in balance as all short term and long term traders are involved.


Below are a few examples of a neutral day.




4. Normal Day


A normal day occurs when there is a small participation by the longer time frame traders expanding the initial balance by approximately half the range of the IB. So if the initial balance was 60 Dow pts, an extension would be 30pts above or below the initial balance.


Normal days have a tendency for active action at the opening hours followed by dull two-sided trading for the remainder of the day. A normal day may also have a wide initial balance indicating a strong conviction by the longer term time frame traders at the open followed by no follow through. The result will lead to price action contained within the initial balance.


Below are a few examples of a normal day.






5. Normal Variation Day


A normal variation day occurs when the other time frame market participant steps into early in the day to upset the initial balance. The range extension is usually double the initial balance. So if the initial balance was 40 Dow points, the range extension would be roughly 80 pts above or below the IB.


The extension causes value area to move higher/lower and is followed by two-sided price action for the rest of the day. Below are a few examples of a normal variation day.




To Be Continued...










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Market Profile Concepts


Initial Balance - Initial balanace refers to the first 60minutes of trading. This time zone is possibly the most important time period as it offers clues to what sort of market one can expect.


A and B period in the chart below shows the initial balance. This term willl continue to come up in the following posts so make sure to learn this key terminology.




Value Area - A market profile chart plots price as a bell curve. This bell curve is then divided into the first, second, and third standard deviation. The first deviation of this bell curve includes the 68% of the total volume, the second deviation includes 29% of the total volume, and the third deviation includes approximately 3% of total volume. See chart below:




The first standard deviation or roughly 68%-70% of the area where most market action took place is the value area.


Point of Control or POC - Point of control is the price level in with the most TPO's. In other words, it is the level in which the markets spent the most time trading.




TPO or Time Price Opportunity - TPO simply refers to each alphabet plotted. Each letter reprents a 30 min time period. One can count the number of TPO's above and below the POC to determine buying vs selling control for the day.




Extremes and Tails - Tails and extremes occur as price is swiftly rejected leaving a vertical line of single print TPO's. Tails are key levels in which price may have a tendency to act as support and resistance.




Range Extension - Any extension beyond the initial balance.









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Here is an example chart from 12/28/07 for further explanation.


First chart shows a regular 30min market profile with A period starting at 9:30am EST. Second chart is the same chart but broken down into TPO segments.






One of the safest ways to trade with market profile is to wait until the Initial Balance has developed. The first 2 periods offers the biggest clues to what type of market we are likely to develop.


One of the things to watch for weakness on a price chart would be lower highs. With a market profile chart, the same concept can be seen when a time period is unable to break above the high of the previous 30minute session. Chart 2 illustrates this with the combination of market internals using the $TICK. Hence, in my opinion learning to use market internals as well as other technical tools is extremely powerful when trading with a market profile chart. This combination offers an edge.


Chart 3 shows how "C period" high also met resistance from the past 2 session lows and 12/22 high.




Any short trades from C period high down to 13550 would of offered great opportunities. Why not play the break of the initial balance? I personally do not play breakouts of the IB. I prefer to wait for a retracement back towards a high of a earlier TPO segment. For example, in the same day if one missed a trading opportunity to the short side a second setups occurs at E and F period.




Price can not reverse until one-timing auction is cut off. So best to trade with the trend until this happens.





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One of the most important element with market profile is the value area. It is important to ask questions like:


  • Are we likely to trade above/below value today? If so, why? If not, why?
  • Can we expect price to remain in the previous days value area or range?
  • Which way is the market trying to auction? Is it doing a good job getting there?
  • Is the price break above/below the initial balance valid? Are we likely to see longer term participants step in to sustain this breakout move? Why or why not?
  • Are we seeing two sided market action?
  • Are we likely to see price pushed back into the initial balance?
  • Was the move above/below the initial balance a rejection pattern?
  • Which way are the markets likely to test first?
  • What does the opening price action tell me?


The point here is that the markets need good activity to move away from the previous day value and to trade away from the initial balance. If there is nothing that hints out any range extension, you can expect price to return to value. This is the most important concept of market profile in my opinion. Understanding this simple concept will help find good trade locations built around this concept.


For example on Dec. 27, 2007 former Prime Minister Benazir Bhutto of Pakistan was assassinated. The futures market reacted negatively on this news causing price to decline premarket.




My first reaction was that the Asian markets may gap down and open lower because of political unstability and chaos in the Asian region. This may impact the US markets as well due to the tight correlation. Next, I asked are we likely to create value placement lower compared to the past two sessions? I had a fundamental reason for lower value placement. Now I needed technical evidence to place any short trades.




Thus I am holding a bias first but with confirmation through price action and trade location through market profile.


The Slip


The slip is what I like to call when price breaks out of the initial balance just to be rejected. In other words, the initial reaction to push price out of the initial balance or value area was wrong. Now we are likely to rotate in the opposite direction. The slip is so common that this is one of the reasons I do not trade momentum IB breakout plays.


To be a good market profile trader, I think one needs to have keen intuition on these slips. Are you seeing buying interest above the initial balance? Are you sensing diminishing demand and weakness? Fading these breakouts takes courage but is one of the most profitable setups one can take. If you short above value, you are simply responding to expensive prices relative to the previous day value. If you are buying below value, you are responding to cheap prices relative to the previous day value. This is responsive activity.


Initiative activity on the other hand is buying above the previous day value area or selling below the previous day value area. The reason you would be buying above value is because you sense a shift in market balance and higher value placement. Vice versa for selling below value.


The most important thing to remember is: Is the market you trade a responsive or initiative type market?


To be continued...



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I am very excited about this thread. I am about to enter into a MP "educational phase".


Would you adivse reading the books in the order you listed them above?

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I am very excited about this thread. I am about to enter into a MP "educational phase".


Would you adivse reading the books in the order you listed them above?


Yes, I would recommend to read in that order. Mind over Markets is the easiest to understand of the three. Steildmayer will help you add further insights.

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Great stuff James.

I totally agree with $TICK and MP as a good combo. One thing I've noticed is that if price is inside the value area, if it takes extreme tick readings to move price to the top/bottom of the value area than it may setup a nice $TICK fade trade. I love Dalton's idea that volume slows price down, which makes perfect sense if your looking at volume by price. Its almost as if the market runs out of firepower to push through the value area if it takes extreme $TICK readings in order to get to the top.

Something that might make for an interesting discussion is with using composite profiles across multiple days, how far back to go, how can we quantify when market conditions have changed enough that past auction information for the same price area is no longer relevant.


Also, I thought Ant said Dalton has a new book coming out next year. Anyone know anything about this?

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Wow. Very nice stuff Soul thank you.


No problem. Thanks to the VSA inputs as well. Ill get into identifying trade location with market profile then going into VSA for entry decision making.


thanks again soultrader!


yw, feel free to post any questions you have on mp. I dont follow it by the book but have my own way of interpreting it.


Also, I thought Ant said Dalton has a new book coming out next year. Anyone know anything about this?


His latest book was Markets in Profile which came out early this year I believe. I dont know of any other book to be released by Dalton yet.

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Here is a sample chart of Dec. 28, 2007. The chart shows the past few session market profiles with explanation.


The left hand side shows 4 day activity of markets auctioning below the current value area. This area of congestion is labeled Bracket 1. On Dec. 22, the markets gapped up higher and created higher value placement. This shift in market balance on the 5th day of trading is significant with A period leaving a single print tail. This level will be a key support level.


Also in Bracket 1, we have an area of confluence shown by the overlapping value low pivot line. Any break below the single print tails will cause price to enter into a previous value/congestion area. This confluence of the value low pivot will be a key support line.


Now shifting to the right hand side of the chart, 12/25 - 12/27 shows a 2 day overlapping value area. 12/28 was rejected in this value area to drop lower into the area created on 12/22. There was also fundamental reason behind this move due to the assassination of former Prime Minister Bhutto.




Strategies with Market Profile & Other Technical Tools


We can now build a strategy based on what the markets is showing us. Questions to ask: Are we ready to move into higher value area created on 12/25 - 12/27? Or are we likely to remain inside of value created on both 12/22 and 12/28? Or are we likely to move into lower value placement inside of Bracket 1?


Answer: All of the above. (who knows?)


So using the 3 questions above, where can we establish trade points? First, if we assume price to break higher into 12/25 - 12/27 value area we can look for a break above A period from 12/28. In other words, we need to determine if buying exists above the 13600 mark. Are internals strong? Is volume increasing? If yes, we can then look for a long setup above this area. VSA techniques on a pullback to this area can be applied.


If we assume price to remain inside of value created on 12/22 and 12/28, we can look for short setups inside the resistance area of 13580 - 13600. Once again, you can wait for VSA setups at this level.


A reference point one can use to gauge strength vs weakness could be the overlapping POC on 12/22 and 12/28. Thus a downward bias may allow a trader to look at the 13500 level for any VSA or other setups. Also again at the 13400 level (below the 12/22 single print tails)


After idenftiying the levels you want to play at, one can then apply his own technical methodologies to execute his/her trades. This is how I prefer to combine market profile with other technical tools.


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great thread, YM today after breaking down from yesterday's poc we tested the previous merge upper edge at 13370 and price was quickly rejected great place to buy . Ill post a chart if I can figurue out how.

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How To Play Single Print Areas


Single print price levels indicate swift price rejection due to the lack of time spent at that price level. These areas are good future support and resistance reference points. Chart shows Jan. 2 - Jan. 3 YM price action. Notice the beginning of the single print trail in "B" period.




Janurary 3rd, 2008 Market Profile resemebles that of a neutral day. Both upside and downside IB range extension occurs on a neutral day in which longer term traders are expressing conflicting views amongst each other. Notice the IB range extension is equivalent both to the upside and downside with a close in the middle of the range.




What is signficant about knowing the type of day?


Understanding what type or types of day the market is showing is important as one can design strategies around it. A neutral day indicates no victory for both bulls and bears. This offers fading type strategies for 1/04/08.


Steidlmayer puts "This indecisiveness of the buyers and sellers also creates the self-fulfilling prophecy of neutral days begetting neutral days."


Key levels I will watch is the previous day high and single print starting level shown in the first chart. Downside support will be previous day low and 1/02 VAL. The idea here is to fade any push out of value. However, this is just one strategy based on one scenario. If the markets prove you wrong, it is important to snap out of your bias/ideas and go with the language of the markets.


I am slightly bearish though due to the reaction of the Nikkei today breaking a very very key support level of 15,000.



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James, thanks for the thread. I have a ton of questions but I don't really know how to ask any of them. I know Darthtrader uses MarketDelta for his MP charts, but is there anything else that you would recommend? Does anything work with TradeStation?

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James, thanks for the thread. I have a ton of questions but I don't really know how to ask any of them. I know Darthtrader uses MarketDelta for his MP charts, but is there anything else that you would recommend? Does anything work with TradeStation?


Hard to say as the only MP tools for TS I used was a version written by Ant from the forums. Unfortunately this is no longer available. I use esignal for all my charts now with MP costing me $50 or additionally a month. I recommend it as it is fairly user-friendly and simple to use.

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I think we are pretty limited software wise with MP because anyone who puts it out has to pay the monthly CBOT fee. Its probly just too much of a headache to bother with.

With tradestation I still think the best option is to get ninjatrader which is free, feed TS data and then get the finalg version for $250 one time fee.


He just seems to be ignoring the cbot fee.

Marketdelta's MP chart is just a partnership with investors r/t, its exactly the same thing you get with investors r/t. I tried to find every option available and those + esignal are the only real options but your going to have to pay for this service one way or another.

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He just seems to be ignoring the cbot fee
I think you ignore the CBOT and or TS at your own peril. Just look at the recent episode with the new $55/month CBOT fees at TS. They cut you off and even with the new feed, live or delayed, it is still unreliable. https://www.tradestation.com/Discussions/Topic.aspx?Topic_ID=72109

The finalg looks like a good product, but it is still code protected and server side verified (if finalg's verification failed or is taken down by CBOT, you will have no function). Just a caveat emptor. If you have access to some of the published MP code and do some studies, you should have a reasonable fascimile of what other MP traders are seeing.

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Chart from January 4, 2008:




Profile resembles that of a Normal Variation Day in which the range extension is double the initial balance. Notice how range extension from C period down to K period is almost the same as the range of A-B period.


Normal Variation Day indicates 30-40% market activity controlled by loger time frame market participants. "b" shaped profile hints of long liquidation. Key question will be "Is the short term selling temporarily over?"


IB Rejection vs Acceptance


Knowing the type of market you trade whether it be reponsive or initiative is important in developing strategies under the IB breakouts. The chart above shows multiple attempts by D-J period to trade back up into the initial balance. However, price is rejected creating lower value placement. Price acceptance below the initial balance is showing further weakness.


My bias will remain for price to trade in this newly developed value area so will look for short opportunities above value. Will post a few charts later as the markets open to show possible short setups.


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What would the MP chart look like for the NQ? The NQ has sort of been in a box play for the last two months and just broke support, I'm curious if that would show a shift in value on the MP chart as well?

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What would the MP chart look like for the NQ? The NQ has sort of been in a box play for the last two months and just broke support, I'm curious if that would show a shift in value on the MP chart as well?


Do you have access to MP for NQ? I dont subscribe to CME at the moment so cant pull up a chart. I just subscribe to CBOT, NYSE, and the Japanese markets at the moment.

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No, I don't actually. I don't actually trade the NQ I was just curious how a MP structure would look after a range bound breakout like that. But judging from the look of the candle it looks like an open-drive day since it opened and pretty much tanked. I guess I could always put together an MP chart in excel?

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No, I don't actually. I don't actually trade the NQ I was just curious how a MP structure would look after a range bound breakout like that. But judging from the look of the candle it looks like an open-drive day since it opened and pretty much tanked. I guess I could always put together an MP chart in excel?


An open test drive will test one direction for supply or demand before reversing. Perhaps you can pull up a NQ 5min chart for me?


I used to plot MP in excel using a Reuters spreadsheet called PowerPluPro. But that was because I did not have access to a MP charting package. It was a nightmare. I guess you could do it if you can export data into a spreadsheet.

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This is the 24hour chart. Looks like a lot of pre-market movement.


Note: times are Mountain Standard, 2 hours behind NYC.




I wouldnt consider that an open test drive. If you plot the initial balance, you will notice how C period (3rd 30min period) upset the IB. Half hour ranges are directional, in other words each 30min period is one-timing down. Typical of Trend Day profiles.


Trend days show that buyers/sellers have used up their energy. You can expect prices to stall a bit and rotate sideways until further directional movemet. Basically continuation strategies should be avoided the followind day.

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James, thanks for the thread. I have a ton of questions but I don't really know how to ask any of them. I know Darthtrader uses MarketDelta for his MP charts, but is there anything else that you would recommend? Does anything work with TradeStation?


Here's an MP file from the TS forum that doesn't plot the POC.



TPO Pro5.0b.ELd

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