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MENTORING - Market Profile - Basics - Coggle Diagram
MENTORING - Market Profile - Basics
Stock prices are known to move up and down, that is vertically.
However, when Steidelmayer understood the concept of value, he thought that there is another direction to stocks.
He thought that the concept of value comes from time. That means while prices are moving up and down, stock prices or assets are building value when the price is moving horizontally, simultaneously.
Stock prices have a horizontal movement too in terms of time.
A price accepted over time becomes value.
Now the challenge is to track the movement of price horizontally. For this the Normal Distribution is tilted vertically to suit for Market Profile.
For this, he chose mode over mean to determine the centrality - that is for the average in - that Normal Distribution.
He retained the measure of dispersion, that is standard deviation, as it is as that is a better concept the explain the distance travelled by a price from the mode.
For this, he started giving names to the mode and standard deviations. This is to suit the traders' interest in market.
He called the mode, which is the frequently occuring data (price, here), the point of control (POC).
The region or the spread or price zone that is 1SD away from the POC on both sides is called the Value Area (VA).
The value area is the zone where the market has traded 70% of the time.
The value area is the zone where 70% of the market prices lie and where 70% of the volume/value happen.
The value area is the most favourable trading place for both buyers and sellers on any given trading day.
Both buyers and sellers are getting agreed to each other within the value area. Within the value area they do not have too much of a disagreement.
Because the value area offers the most business, this is the zone where you will find liquidity easily.
There are three components in a value area: (a) POC; (b) Value Area High (VAH); (c) Value Area Low (VAL)
VAH is the high of the value area, which is the boundary to tell you that players are within or going out of the value zone.
VAL is the low of the value area, which is the boundary to tell you that players are within or going out of the value zone.
At VAH generally there is initiative buying and responsive selling. At VAL generally there is initiatve selling and responsive buying.