Please enable JavaScript.
Coggle requires JavaScript to display documents.
Market Profile - Building blocks (A Market Profile graphic is a Normal…
Market Profile - Building blocks
A Market Profile graphic is a Normal Distribution curve arranged vertically for the sake of observing price distribution across time.
A Market Profile graphic explains the behavior of the market through two dimensions - vertical dimension (price distribution up and down) and horizontal dimension (time distribution, to the right and left).
Other chart patterns also look at the market on both dimensions, but only intuitively. A Market Profile graphic, because of its differential arrangement of data, makes it more clearer to observe the market both vertically and horizontally.
Moreover, through a Market Profile graphic, you can quantify and compare the moves in both dimensions.
A Market Profile graphic is represented through a
unique unit
, which measures various aspects of market distribution.
A third dimension you add to a Market Profile graphic is the impact of volume at a price, not at a time.
In Market Profile, we use volume at a price (horizontal distribution, which is more powerful concept) as the overarching concept that brings granularity to your market analysis.
The unique unit that a Market Profile graphic uses to measure the market behaviour is called "time-price opportunity". This was coined by Peter Steidelmayer who brought forth Market Profile to the professional trading scene. From there it got on to the retail scene.
A time price opportunity (or a TPO) is the most important building block of a Market Profile graphic.
A TPO is based on the concept built by Steildelmayer that Price * Time = Value.
Our real money comes at places where price is valued. That is where most trades will occur because of the sheer volume that real money brings there.
Price that is repeatedly occurring over time is value.
How do we measure this value?
To measure this, Steidelmayer took the help of statistics where the concept of Normal Distribution has already explained the behaviour of financial prices or markets. So he presumed that financial markets are forming a normal distribution and forcefitted every days price behaviour into a bell curve - albeit vertically.
To measure it, he designed the concept of TPO.
What are the concepts that explain a TPO. They are (1) Price advertises the opportunity; (2) Time regulates that opportunity; (3) Volume dictates the success or failure of that opportunity.
A trading opportunity is an anamoly that occurs in the market because of the differential requirments and behaviours of players.
A TPO is formed in our Market Profile graphic whenever a deal or a tick happens. That is whenever a buyer and seller strike a deal.
ASSIGNMENT: In Ninjatrader, open the Market Profile graphic after market close and analyse how TPOs have formed during the day. In both split and unsplit modes.