Market Profile Basics and

Components
By
Jaychandran

Introduction
AMarket Profileis an intra-day charting

technique (price vertical, time/activity horizontal)

devised byJ. Peter Steidlmayer, a trader at
theChicago Board of Trade(CBOT), ca 19591985.
Steidlmayer was seeking to evaluatemarket
valueas it developed in the day time frame.
Steidlmayer's charts displayed a bell shape, fatter
at the middle prices, with activity tailing off at the
higher and lower prices. In this structure he
recognized the 'Normal',gaussian distributionhe
had met with in college statistics.
Source: Wikipedia

Market profile is not a trading system. Use it

along with your your trading system.

There is no greater indicator of what the

market is doing than the market itself.

Its a decision making tool to support your

system and signals.

Courtesy : Linda Raschke

Key Market Profile Terms

Initial Balance- IB (Price range developed at first 60 Min range i.e 1st
hour high & low )
Value Area VA ( Area where 70% of TPO's present on any given time
frame )
Value Area Low VAL ( Lower range of VALUE AREA current Profile)
Value Area High - VAH (Higher range of VALUE AREA current Profile)
Yesterday's Value Area Low - YVAL (Value Area Low of previous day
profile)
Yesterday's Value Area High - YVAH (Value Area High of previous day
profile)
Point Of Control - POC (Price at which Highest TPO's occurred. In simple
where buyers and sellers agreed the price. )
Developing Point Of Control - DPOC (Price at which Highest TPO's
developing for the current Day)
Virgin Point of Control - VPOC (POC which is not touched in following
sessions. Usually Provide strong Support/resistance )
Range Extension - RE (Market activity which happens above/below the
Initial Balance i.e first hour range)

Opening Types and Day

Types
Opening Types Open Drive (OD), Open

Rejection Reverse (ORR), Open Test Drive

(OTD), Open Auction In Range (OAIR), Open
Auction Outside Range (OAOR).
Day Types Normal Day, Normal Variation

Day, Double Distribution Day, Neutral Day,

Neutral Extreme Day, Trend day.

Open Drive
Price opens above/below previous day value area

and proceeds in a unidirectional way without any

retracements.

Open Rejection Reverse

Price Opens outside the previous days value area

the move outside value is rejected and the marker

reverses sharply back into the previous days
range.

Open Test Drive

After the market opens, the price tests in one

direction and then sharply turns around and

drives in the opposite direction.

Open Auction
OAIR - Price opens inside the previous day range and rotates

around the opening price.

OAOR Price opens outside the previous day range and rotates
around the opening price.

Normal Day
* Initial Balance will be wide
* Bell shaped Distribution
* No Range extension above IB ( Some times we have

small RE )

* Price trades at value area (even if trades outside it will come

back to VA again)
* Price looking to trade in this zone for sometime.
* Happens mostly at Stage 3

Normal Variation Day

This type of day does not have as wide a first hours range as a

normal day
The Initial balance or base is upset as the other time frame

player pushes price out of first hours range.

The rest of the day is then spent forming a new value area

outside of the early base.

Neutral Day
The Price tests on both sides of the initial balance. Price

continues to rotate.
Both the buyers and sellers are active but no one is in
control
This type of day tends to form a broad value area or
trading range. A breakout from this range must be
accompanied by an increase in volume to indicate that
the other time frame player has gained control.

Neutral Extreme Day

The Price tests on both sides of the initial balance.

Price continues to rotate and closes at extreme

near days high or low.
Both the buyers and sellers are active but one will

get control around close.

Neutral extreme day shows a sign

of top or bottom

Double Distribution

A double distribution trend day lacks the strong

opening drive and instead has a narrow initial
balance. Single prints then market move out of
the initial balance and the other time frame
player remains firmly in control

Trend Day
Uni-directional movement fuelled by high volume

without major retracements.

Other time frame player in in control from the

opening price.
Happens mostly at stage one

Judging Markets using Value

Area
Value area placements are used to judge about

price movements.

Value area higher, value area lower, value area

overlapping of previous day value area gives

good hindsights of what market is doing.

Price opening above previous day value area

high is a bullish sign.

Price opening below previous day value area

low is a bearish sign.

The 80% Rule

When price opens above or below

previous day value area and then gets

into the value area for 2 consecutive half
hour periods. The price has 80% of
chance of filling the previous day value
area.

Buying Tails
Single prints (time spent less) left at the bottom of

the profile by the action of the long time buyer.

Fast price rejection at bottom.

Selling Tails
Single prints left at the top of the profile by the

action of the long term seller.

Fast price rejection at top.

Distribution Shapes
Price distribution shapes suggest what kind of market

activity took place.

b shaped profile suggest a long liquidation activity in
the market.
p shaped profile suggest a short covering activity in the
market.

Virgin Point of Control

(VPOC)
The VPOC is a POC that has not been revisited

by price.
VPOC acts as strong support / resistance going

forward.
VPOC can be used as a target.
Often reversals happen at VPOC.

Responsive Activity
Responsive buying - When the

Traders decide to buy below the

value area.

Responsive selling When the traders

decide to sell above the value area.

Initiative Activity
Initiative Buying When the traders

decide to buy above the value area.

Zzzzzzzzzzzzz

Initiative Selling When the

traders
decide to sell below the value
area.

Quotes
If you CANNOT make money with $100 what in

the world makes you think you can with

$100,000. it will ONLY be 1000 times worse.
Those who think they know the most, really

know the least. Humble and objective beats

arrogant and close minded every time.
"The best traders have no ego. You have to

swallow your pride and get out of the losses." Tom Baldwin

Questions