TRADE SCHOOL MARKET PROFILE BASICS Nick Fosco September

TRADE SCHOOL: MARKET PROFILE BASICS Nick Fosco September 11, 2010

MARKET PROFILE HISTORY Developer: J. Peter Steidlmayer - CBOT Traders for over 40 yrs - Developed in the 1981 - 1983 - Graphical organization of price and time - Mostly used for intra-day trading Source: Market Profile Basics; by Jayanthi Gapa; akrishman http: //www. earnforex. com/forex-e-books/forex-market/Market_Profile_Basics. pdf

MARKET PROFILE FUNDAMENTALS Is not an indicator � Does not provide buy/sell signals Is a decision-support tool � Organizes data to allow for understanding of Market control � Provides understanding of fair value � Identifies direction of price move Trade positioning � Market Profile data allows for advantageous trade positioning

MARKET PROFILE THEORY Concept: Market’s daily organization determined by Time, Price and Volume. Based on normal distribution curve � Value Area: Range of daily prices where 70% of trades take place (one standard deviation) Market are normally skewed � It is rare to see market prices follow into a normal distribution curve

MARKET PROFILE RULES Volume is key � Look for volume action away from value area Volume dries up � Sellers not happy with price change � Prices will most likely revert to value area Volume stays strong � New price point is being accepted � Will most likely form new value area

GENERATION THE MARKET PROFILE Time Price Opportunities (Tpos) � Represented by letters � Each letter is 30 minute period Initial Balance � Price Range during first trading hour (Tpos A & B) � Price exploration period Point of Control � Price with largest amount of Tpos

MARKET PROFILE TYPES Normal Variation - Early trading activity (D) followed by range extension buying. Trend Day - Prices constantly moving directionally - No interest in price reversal Double Distribution Day - Original price value was found to be unfair

THINK OR SWIM Active Trader � TOS has very similar profile that is located under the Active Trader tab � Let’s go to TOS platform for details