MARKET PROFILE is a concept which allows us to know the order in the market. Simply putting, it would give us information connected to issues like “who controlled the market, what is felt as fair value by the players in the market,” value area, etc.,
Let’s not confuse this concept with other indicators which traders use while trading. Its not an indicator of buying and selling signals basically.
Objectives And Purpose of Market Profile
It gives us the ability to understand the direction of the prices by providing us valuable information like VALUE AREA and POC. Thus it serves our purpose of knowing the limits of which we got to enter and exit while trading. MARKET PROFILE is made with TIME PRICE OPPORTUNITIES. VALUE AREA is nothing but the area within which 70% of the trades took place in a given time frame. POC is the place at which a number of TIME PRICE OPPORTUNITIES have happened.
Thus this concept serves us the purpose of identifying a trend and accordingly position our trades.
Merits of MARKET PROFILE
MARKET PROFILE can rely on all market conditions, which happens to be a key advantage since other tools work under certain specific situations.
MARKET PROFILE tells us the current situation of what the market perceives as the VALUE. It provides certain key information like, levels which are crucial for the market to change the direction, locations which are safe for entry and exit, market readiness to move from its existing areas, etc ., In other words, t equips traders with real-time access to trading volume data. Day traders, swing traders can have a clue of balance in markets and price levels at which most of the trading took place. Traders who trade with indicators are at the mercy of signals that come up, especially when they don’t clearly understand the movement of the market. Trading with a market profile will, in a way, force them to learn and understand the way markets are moving so that they take better decisions in their trades.
Unfortunately, it doesn’t give traders, specific buy, and sell signals since it’s the focus is to give the trader the whole picture of what’s happening in the market. MARKET PROFILE doesn’t make sense when markets are not in equilibrium. Sometimes false breakouts can happen, even when the market maintains equilibrium and prices get back after one or two days. It’s the equilibrium that gives a valid point of control or standard deviation. Therefore once the market loses equilibrium, the concept of MARKET PROFILE comes up with an invalid profile.
It is superior to other tools since there is no tool which gives us MARKET VALUE. It gives us an accurate picture of market behavior under various market conditions. A strategy wherein VOLUME PROFILE and MARKET PROFILE are considered looks to be more effective to position the trades. It is advisable for traders to go for a view of at least three days measure instead of taking the risk of one day measure