Master the MARKET PROFILE in 30 Minutes

Welcome to the ultimate beginner's guide to the market profile. In this course, you gain access to the methodology used by many elite traders around the world. This is a summary of what you're going to learn in this course. We're going to study the auction market theory primer, market profile mechanics and elements, different types of buyers and sellers, degrees of bullish and bearish power, how to determine the trend for the day, week, and month. Spot price levels that actually matter. Read market sentiment through time instead of emotion. Spot high probability setups, timebased market structure, statistical trend pressure, common profile formations, action points, multi-time frame profiles, and examples. Before we begin with the mechanics of the market profile, we need to establish a foundation with the auction market theory. We need to do that in order to be able to understand what the profile is showing us to understand why and how price moves in the way it does and the many features of the market profile. If you are already familiar with the auction market theory, you can skip to the next chapter. The auction market theory was developed by a CBOT trader called Peter Style in the 1980s. Style Meer also created the market profile as a way to visualize the auction process in a market in a way that candlesticks cannot do. The auction market theory is the foundation for the market profile and for all the other orderflow tools that came later. According to the auction market theory, the market works as a continuous two-way auction. It's continuous because trading never really stops during trading sessions. And it's two-way because both sides of the market, the buyers and the sellers, participate simultaneously. Buyers bid for the asset trying to buy as low as possible. And sellers offer the asset trying to sell as high as possible. This constant conflict of interest between buyers and sellers ensures that price is always seeking to represent value accurately. In other words, the purpose of a market is to facilitate trading so that market participants discover the price that accurately reflects value. Buyers and sellers trade based on how they perceive value relative to price. Price is the objective measurement of the market. It's a number. Value is the subjective measurement of the market. It's a perception. There are three possibilities. A market player can look at price and sense that it accurately reflects value. In that case, this market participant does not have any motivation to engage by buying or selling because there is no opportunity to buy low or sell high in the eyes of this market participant. A market participant can also perceive that the current price is below value. That will motivate this participant to be a buyer because of this perception that price is low. The third possibility is when a market participant perceives that the current price is above value. That will motivate this participant to be a seller due to this perception that price is high. Another important point is that different market players will have different perceptions of price simultaneously. What might be a cheap price for one can be an expensive price for another. The simultaneous disagreement is one of the things that create liquidity in the market because for you to buy right now, for example, there must be someone else willing to sell at the same price. It's also important to remember that buyers can turn into sellers and vice versa depending on new information and also the time frame of choice. For example, you can be bullish in a low time frame while being bearish in a higher time frame simultaneously or vice versa. Of course, the reason why the relationship between price and value is important is because when most market players perceive the price accurately reflects value, the market remains in balance in a sideways movement. Recall that when market participants perceive the price accurately reflects value, they don't have motivation to engage because they don't see an opportunity to buy low or sell high. However, if new information makes market players perceive that price does not accurately reflect value, they will engage. This will put price in discovery mode, which is what happens in a trend. It's called price discovery because the market will find the new price level that accurately represents value given the available information. So, the market only has these two modes, sideways and trending. Sideways markets are associated with the idea of fair value, balance, and acceptance. Trending markets are associated with the idea of unfair value, imbalance, and rejection. The reason you should care about this is that price reacts to previous areas of balance and imbalance. Areas of balance tend to attract price and areas of imbalance tend to repel price. In other words, the marketer remembers the recent price levels that were accepted as fair value and the price levels that were rejected and it will come back to these levels to test them again. The key is to observe how price behaves when it comes back to these areas. The problem is that these areas of balance and imbalance are not so obvious just by looking at candlesticks because candlestick charts only show pricebased structure. This is where the market profile enters the scene. It unveils timebased structure hidden in price. Let's now become familiar with the inner workings of the market profile. A candlestick chart allows us to see market structure through the dimension of price, which is useful, but it's not the full story. The market profile is a charting method that allows us to see market structure through the dimension of time, which is a great way to know where value is. And if you know where value is, you know where price is going. In other words, value leads price. The combination between price-based and timebased market structure is incredibly useful to any trader. To easily understand what the market profile is all about, we need to understand the relationship between value and time. The market profile is a charting method that uses time to reveal areas of balance and imbalance in a way that traditional candlestick charts cannot do. This does not mean that candlestick charts are bad. They were simply not built with this purpose in mind. The underlying rationale behind the market profile is straightforward. The market profile measures the areas of fair and unfair value using the amount of time spent in each price level. In other words, a candlestick chart shows us where price is and has been. The market profile shows us how much time price spent in each price level. The crucial thing here is to grasp that time spent in a price level is a proxy for value. Let's now understand how the market profile chart is constructed based on this idea of time as an indication of value. The market profile is not an indicator. It's a chart type. In trading view, you can access it by clicking the button next to the time frame where you select different chart types and then choosing time, price, opportunity. The market profile is the horizontal histogram formed by the small squares. Each square is called tpo which stands for time price opportunity. As a standard each tpo has a time duration of 30 minutes and each tpio is assigned a letter in alphabetical order. So the first half hour of the day is a the second half hour is b and so on. When we look at the profile the letters seem to be scrambled randomly. So we need to deconstruct the way the profile is formed in order to understand how the histogram works. So let's imagine a hypothetical profile. In the y-axis we have price. In the x-axis we have time just like in the candlestick chart. During the first half hour assigned with the letter A, TPOS will appear highlighting the range of price movement of that half hour like so. In the second half hour, now assigned with the letter B, the same process occurs. As the trading session advances, we get more TPOS following the same logic. This is the rough profile, so to speak. To get to the actual market profile, we need to collapse all TPOS's to the left, filling all the empty spaces like so. Once we collapse all tpos to the left, we can notice that the market profile resembles a bell-shaped distribution, also known as a Gaussian distribution. This leads us to the idea of the value area and point of control. The empirical rule in statistics states that 68% of data falls within one standard deviation from the mean in a Gaussian distribution. The market profile assumes the distribution of time at price follows this Gaussian distribution. Although this doesn't really happen in reality. All of that means that the value area is the area where 68% of all TPOs exist. Traders round that up to 70%. The price range within the value area is considered fair value and the price ranges outside of it are considered unfair value. The price level with the greatest number of TPOS's is called point of control and it's the price level that most accurately represents value because it's the level where the market spent the greatest amount of time. The value area and point of control are the most important action points in the market profile. But there are many other elements we must also pay attention to. The first element we'll talk about is the initial balance. This represents the first hour of trading of the day. So, it's the price range that encapsulates letters A and B. In Trading View, the initial balance is marked by a black vertical bar on the left of the profile. Notice that the price range in the second half of the first hour, which corresponds to the TPOS's assigned with the letter B, occur within the range traded in the first half hour assigned with the letter A. In this example, in the market profile approach, trading inside the initial balance is usually a result from short-term traders like the day traders. Any movement beyond the initial balance is considered to be a result from long-term traders like swing and position traders. This relates to what was said earlier about market participants having different perceptions in different time frames. A short-term trader might perceive the initial balance as fair value while a long-term trader might perceive the initial balance as unfair value. The areas beyond the initial balance where the activity of the long-term traders occurs is called range extension. The total vertical space travel by price in the profile is simply called range. Another important element in the market profile is the single print tail. The single print tails are the tposs that happen at the extremes of the range consisting of just one tpo wide and with at least two or three tpos tall. At the top we have the single print selling tail and at the bottom we have the single print buying tail. The single print tail represents extreme rejection. In a single print buying tail, we have an indication of strong buyer response after sellers pushed price down. The market spent very little time at the low before being pushed higher. In other words, buyers perceive prices as unfairly low. The low of the single print buying tail becomes a strong support. In a single print selling tail, we have an indication of strong seller response after buyers pushed priced up. The market spent very little time at the high before being pushed lower. In other words, sellers perceived prices as unfairly high. The high of the single print selling tail becomes a strong resistance. It's also possible to have single prints in the middle of the profile. The logic is similar. These are regions where price spent very little time. So they are treated as areas of unfair value, imbalance or rejection. Recalling that such areas tend to repel price action. This is the real fair value gap because it's an area of unfair value between two areas of fair value. Let's now move on to two important ideas for the market profile approach which are called initiative and responsive trading. Responsive trading is a result from the activity of short-term traders. When price is at the upper extreme of the initial balance or value area of the profile, the short-term market participants will perceive that price doesn't reflect the current value, meaning that it is high. So, they will respond by selling to bring price back down to fair value. This is called responsive selling. When price is at the lower extreme of the initial balance or value area, the short-term market participants will also perceive that price doesn't reflect the current value, meaning that it is low. So, they will respond by buying to bring price back up to fair value. This is called responsive buying. Initiative trading comes from the activity of long-term traders. If price exceeds the upper extreme of the value area or initial balance, the long-term market participants may still think that price is low because they are thinking about future value, not current value. The consequence is that they initiate an uptrend. This is called initiative buying. If price exceeds the lower extreme of the value area or initial balance, the long-term market participants may still think that price is high because they are thinking about future value, not current value. The consequence is that they initiate a downtrend. This is called initiative selling. In summary, the difference between responsive and initiative action is that responsive action is a consequence from short-term traders comparing price to current value and initiative action is a consequence from long-term traders comparing price to future value. The value area of the profile can change throughout the day, which makes the determination of responsive and initiative action trickier. What market profile traders do is to use a reference point that has been fully established in order to determine buying and selling activity. This reference point is the previous value area. Let's define responsive and initiative trading again but now using the objective reference point of the previous day's value area. In this image, we have two consecutive profiles. Our objective reference point is the previous day's value area. Like we can see here, we can define responsive and initiative action depending on the location of the current day's profile relative to the previous day's value area. In this case, we have responsive selling trying to bring the market down to the previous day's value area. And we have initiative buying trying to move the market away from the previous day's value area. Notice how the current day finds a strong support at the previous day's value area high. That is a support level that would not be obvious to a trader looking at candlestick charts only. Here we have another example, but now the current day's price action is below the previous day's value area. In this case, we have responsive buying trying to go back to the previous day's value area and initiative selling trying to move the market away from the previous day's value area. Notice how the previous day's value area low and point of control act as resistance. In this case, both initiative buying and responsive selling occur above the previous day's value area. Similarly, both initiative selling and responsive buying occur below the previous day's value area. Let's now talk about how to determine trends using the market profile approach. An uptrend is defined as initiative activity above the previous day's value area. A downtrend is defined as initiative activity below the previous day's value area. For example, here we have a clear uptrend. Notice that trading activity never happens below the previous day's value area. In two instances, we have the previous day's value area high working as an extremely precise support level. In another instance, the current day's low fails to come back to the previous day's value area high, but it stops at a significant peak in the profile. Like we can see here, we can expand this idea of trend identification using other profile elements. The market profile approach provides what are called degrees of buying and bearish power based on a few objective parameters. the current day's initial balance, the current day's value area, the previous day's value area, and the previous day's range. Let's rank the different degrees of bullish and bearish power from the weakest to the strongest, starting with the bullish degrees. Number one, the current day's activity is within its initial balance and above the previous day's value area. Number two, the current day's activity is above its initial balance but within its value area. It's also above the previous day's value area. Number three, the current day's activity is above its value area and above the previous day's value area. Number four, the current day's activity is within its initial balance and above the previous day's range. Number five, the current day's activity is above its initial balance but within its value area. It's also above the previous day's range. Number six, the current day's activity is above its value area and above the previous day's range. Let's now rank the six° of bearish power from the weakest to the strongest. Number one, the current day's activity is within its initial balance and below the previous day's value area. Number two, the current day's activity is below its initial balance but within its value area. It's also below the previous day's value area. Number three, the current day's activity is below its value area and below the previous day's value area. Number four, the current day's activity is within its initial balance and below the previous day's range. Number five, the current day's activity is below its initial balance but within its value area. It's also below the previous day's range. Number six, the current day's activity is below its value area and below the previous day's range. Another way of determining the trend bias with the market profile is through a statistical approach. The profile is expected to have a Gaussian distribution meaning a symmetrical distribution where the number of TPOs above and below the point of control are the same or at least almost the same. So for example, if we encounter a skewed profile like this where we have more TPOS below the point of control than above, there is an expectation that this profile is bound to become symmetrical. For this to happen, price has to rise and trade above the point of control for a while. This leads us to a basic interpretation of statistical trend pressure. More TPOS below the point of control indicate the possibility of bullish action in the future. More TPOS above the point of control indicate the possibility of bearish action in the future. We move on to the five basic profile formations. These are the typical daily formations you'll find most of the time in any market. They are the non-trend day, the normal day, the normal variation day, the trend day, and the neutral day. Let's begin by analyzing the overall structure of the non-trend day profile formation. The non-trend day occurs when trading is contained within the initial balance with the added detail that the initial balance is not too wide. Since trading activity doesn't go outside the initial balance, the non-trend day is a result from short-term traders speculating around fair value. This produces a predictable sideways market. Long-term traders have no interest in setting a trend due to the lack of new significant information about the market or they are waiting for important announcements to be released. Next in line, we have the normal day. The normal day is similar to the non-trend day in the sense that trading is contained within the initial balance. The difference is that the normal day is wider than the non-trend day. Next, we have the normal variation day. In this formation, price will breach one of the sides of the initial balance, creating a range extension that can be up to twice the size of the initial balance. This is a formation primarily driven by long-term traders once they detect a discrepancy between price and value. In this case, we see an example of initiative buying creating a range extension upwards, but the normal variation can also happen for initiative selling. Of course, next we have the trend day. The trend day starts with a relatively narrower range than the normal variation day. Price quickly breaks the initial balance and creates a large range extension to one of the sides. The overall width of the profile is narrow because price moves quickly across many price levels with the occasional retracement and small consolidation to let the trend regain strength. One important detail is that in a trend day, the closing price tends to happen near the extreme. So if price quickly breaks the initial balance, the trader can anticipate that price will form a trend day and close far from the open. Next we have the neutral day. In a neutral day, price breaks both extremes of the initial balance. This highlights a battle between short and long-term traders. In this type of formation, price tends to close roughly in the middle of the range. It's also possible for price to close in one of the range extensions and in that case the neutral day is expected to have greater volatility compared to the neutral day with mid-range close. To finish the course, let's go over multi-time frame analysis and some examples using the market profile to find high probability trading areas. As a standard, the daily market profile is used, but can also obtain information from the weekly and monthly profiles. For example, here we see the daily profiles as a standard. To change the profile time frame, go to the upper left corner of the chart and click the three dots and go to settings. In the row label period, we can choose between daily, weekly, and monthly. I chose weekly here. So now we see all daily profiles for the week aggregated in one. We can use the knowledge of degrees of buying and selling power to assess the bias for the day, week, and month by observing market profiles in different time frames. And we can also use the profile elements to find key areas for the next day, week, and month. Let's observe an example of that. In this chart, I chose the weekly profile. I highlighted two areas on the left profile that serve as a reference for the next week's profile. the value area in green and the point of control in gray. The vertical dotted lines show exactly the limit between weeks which is going to be useful later when we switch to candlestick charts. What we notice here is that the next week opens at the value area low. Here we can see the responsive action of the short-term traders. In this case of the weekly profile, the short-term traders would be swing traders that use shorttime horizons. The reason for that is that we see price returning to the previous week's point of control. Price rejects the previous week's point of control and then goes below the previous week's value area. This is where initiative selling begins by the long-term market participants. Let's maintain these important levels marked and switch to the candlestick chart. Notice how the previous week was more of a consolidation. The value area cuts through the middle of it and the point of control served as an axis of rotation for the entire week. It's some sort of general support and resistance level. We can see price reacting to it during the whole week. When the next week starts, we see responsive buyers trying to push price back to the previous week's point of control. And when price does meet that level, we have a clear sign of rejection. This clear rejection set the tone for the rest of the week, which was bearish. Another important level here relates to the previous week's range, which is highlighted in gray. That's the space between the highest and lowest point of the previous week's movement. We can notice that this level was also significant for the next week. The rejection of the previous week's point of control was the first sign of bearish power. And then we see price zoom through the low of the range, creating an even greater bearish bias. This rejection of the previous week's range low means that responsive buyers failed and initiative sellers won. Later on, we see price coming back to this level and confirming the rejection. Notice how the previous week's range, value area, and point of control established the key levels for the next week in a perfectly objective way. This is one example of how weekly profile could influence the trades you take based on daily profiles. You incorporate the bias in levels provided by the higher time frame in order to gauge the trades on a lower time frame. Let's now see an example using degrees of power to establish the trend for the day. This chart we have daily profiles. Notice that this day opened above the previous day's range and value area. Notice also that the upper limit of the range and the value area high of the previous profile coincide in the same price level. In other words, this day opened with a bullish bias and this can make all the difference for the rest of the decisions you make in the day. When we switch to the candlestick chart, we see that in the second hour of the day, price returns to the intersection between the value area high and upper limit of the range and most importantly it rejects it. we can see a more significant lower shadow with a subsequent bullish candle that sets the tone for the rest of the day. So, a trader focusing more on long trades will have a better outcome. Another interesting detail here is that the initial balance can be used as support. In this chart, we can see the initial balance, which is just the range covered during the first hour of the day highlighted in green. Notice that price escapes to the upside with the initiative buyers and then comes back to the high of the initial balance to test it. We can once again see the clear rejection of the level. This marked the other significant point of the day. Let's now observe an example where we combine weekly profiles plus some other profile elements to have a clearer view of the market. In this first chart, we see the weekly profiles and I highlighted the value area in red. The white areas of the profile represent where sideways markets occurred and the narrow areas show where price was in full discovery mode. The first detail I want you to see here is that the next week's profile opens way below the previous value area. We also see that eventually price goes to the value area low of the previous profile. This upward movement from the open to the previous value area low is responsive buying. Another detail here is that the value area low of the previous profile coincides with one of the significant peaks of the histogram. It's not the point of control, but is the second highest peak in the profile. If we go to the candlestick chart, we can perhaps visualize that more clearly. Here we see that two of the important reversals of the week happened at this level where the previous value area low and second highest peak in the histogram occurred. Notice how price action rejects those levels as soon as it reaches them. Going back to the weekly profile, now I have marked single print buying tail and a smaller single print on the inside of the profile. These were the price levels where there was extreme rejection. Just by looking at the weekly profile, we already know that the week opened, responsive buy began and failed to breach the previous week's value area low and then came back to the internal single prints. In the candlestick chart, we can see that rejection very clearly judging by the geometry of the candles that interact with the single print region. The same level also works extremely well later in the week. Another detail here is that the internal single prints of the weekly profile correlate with the next week's gap. This concludes the market profile course. If you want to enhance your trading skills and make more rational decisions, I offer a whole range of advanced trading courses with many different scientific principles and precise trading techniques. You can learn more about them in my website fractalflowpro.com or by sending me an email at support@frflowpro.com. If you enjoyed this video, please help support the channel by clicking the like button, subscribing to the channel, activating the notifications, leaving a comment, and sharing the video with your trading community. Thank you very much for watching, and I hope to see you in the next videos. Take care.