Market profile and understanding of the language


Study the characteristics of the market is the price. Each transaction of purchase or sale is the price. Equilibrium market shown in the chart using a market profile, tends to form a bell-shaped curve, rotated by 90 degrees by the orientation of the chart.

As it provides information

Let's see how the market profile is information. Instead of images of each half-hour segment in the form of bars, each such segment is denoted by the letter of his, and then located in a special way. Suppose B is the first half hour. The figure shows a 30-minute bar chart can be converted into a market profile shown to the right of it.

Each letter is called HAB, which stands for "Time-Value-Ability» (TPO, Time-Price-Opportunity). This means that the item is offered at a given price at this time. You put in the chart at each price level at which the transactions were in the first half. At the end of an hour you will have a vertical column of letters in covering the trading range and similar to the half-hour bar.

The second half hour will be denoted by C. Since you put at each price level, where the transaction took place, and place the letter as soon as possible to the left. Places where B and C overlap, will consist of two letters in a row, but where C reaches a new low, or the top, it will stand in the same column as B. Furthermore continued similarly with D and other letters.

It can be noted that the width of the chart increases in those rows where the price was more often. Thick profile shows that the price had a lot of time on the same level. This happens when the market is relatively balanced, as with time, at a given price, there were more opportunities. The slim profile means fast movement to a new level, what happens when the market is in disequilibrium. The outline of the profile shows the ratio of vertical and horizontal motion is the key to understanding what makes the market participants.

If you turn on the profile picture, it looks like a rough approximation of the bell-shaped curve, which is typical for the equilibrium balanced market. The vertical line on the right in the picture shows where the first line is the standard deviation. It is called the "zone of value» (value area). Figure shows the profile of the 10-year treasury bonds for March 2-9, 2000.

Profile 6-day shows balance. The longest line at 95-150 is fashion. Bottom of the band value is around 95-125. Now look at the profile of the 8th day. Can you identify the fashion? These are levels 95-205 and 95-190. Can you identify the area of value? If you take 67% of HAB surrounding fashion, you get the area value for 95-240 95-165. This is the range in which is most of the market activity. The figure market profile of each day creates a variation of the bell curve. Some pictures are almost perfect and normal. Others shifted, and their value area is on the top or bottom of the range. There are sections with a small range, but a long vertical activity, and the case of extremely large range, with no horizontal component.