Market Profile

Market Profile Chart
Market Profile charts were invented in the 1980's. The goal was to offer a better analysis method to traders at the US commodity markets. The development was done in cooperation between the trader Peter Steidlmayer and the Chicago Board of Trade (CBOT).

Market Profile charts are different from the normal display of the price movements versus the time line. While the prices are still given on the x-axis, the time line is given in units of "Time Price Opportunities" (TPO) that are marked with letters. This results in a more or less bell-shaped distribution of the TPOs over the price span of the trading day.

Use the Market Profile chart for
  • Analyzing the distribution of trading activity
  • Analyzing the "Fair Value" span with most of the trading activity
  • Analyzing the volume distribution over the trading day
  • Analyzing of trend movements
Tradesignal offers you Market Profile charts as a designated chart type. However, it is not available for all versions. As an alternative for displaying the volume/price correlation, you can use the indicator "Price Volume Profile" that is delivered with Tradesignal.

Due to the special focus of the tick-based Market Profile, it is usually only displayed for one or two trading days. If you want to display more than two trading days, the history length has to be set to the maximal value of 500000 ticks. If your data provider offers this history length, you can display up to eight days as Market Profile.

Creating a Market Profile

For a Market Profile, stocks, futures, commodities, currencies etc. can be used as long as they show a high trading frequency per day.

For a quick look at the chart type, right-click on an index in the symbol list and select Open in Market Profile.

Construction and Information in a Market Profile

The time units for the graph are fixed intervals called "Time Price Opportunities" (TPOs). They are basically trading periods. The standard setting is 30 minutes but can also be set to one hour.

For each TPO, a letter is used, starting with a capital "A". When the start of the trading is entered correctly, the "A" is displayed in the chart for the first price in the first TPO. For each new price level traded in that TPO, the letter "A" is added. The size of each price level is set in the Scale factor. For example, for a scale factor of "2", the price has to change 2 points (or cents) to open a new price level.

After the first TPO, the price levels traded in the second TPO are displayed in the chart with a "B", in the third with "C" and so forth.

The result of this continuous recording is a pictorial representation of the trading activity in relation to the time line. In the chart given as example below, the price had a very small range for a while until it broke out. The large protrusion for the letters D and E shows that in the range of 6370 points, an equilibrium was formed. Such an equilibrium is called the Fair Value Area. At the end of the trading day, the position of the Fair Value Areas in regard to their position in the total price range can be evaluated.

As additional information, a brown and a black bar are displayed. The black bar spans 70% of the time with the highest trading activity. The brown bar spans 70% of the highest trading activity (in volume). The two rectangles mark the respective maxima.

Elements in a Market Profile Chart

Market Profile Details

Black Framed Area in the Example Graph

Here, the price versus time is displayed. Each letter stands for a TPO (Time Price Opportunity). Above this area, in the header of the chart, the following data is displayed (from top to bottom):
  1. The highest price level traded
  2. The lowest price level traded
  3. The ratio of number of letters and the high/low span

Light-Green Framed Area in the Example Graph

Here you can find the number of traded contracts (contract volume) or the tick volume for each price level. In the example, 1302 contracts were traded (bought and sold) in the price span 6381-6382. The displayed volume is specified with the parameter Volume Type in the properties.

Dark-Green Framed Area in the Example Graph

Here you can find a brown bar that marks the range of 70 % of volume activity. The small rectangle marks the price level with the highest volume activity. This point is called Volume Point of Control. Above this area, in the header of the chart, the following data is displayed (from top to bottom):
  1. Volumes traded above the Point of Control
  2. Volumes traded below the Point of Control
  3. Total trading volume

Light-Blue Framed Area in the Example Graph

Here you can find the sum of TPOs (periods) in which the respective price levels were traded. For example, the range 6376-6377 was traded in a total of six periods.

Dark-Blue Framed Area in the Example Graph

Here you can find the black bar that marks the range of 70% activity in the time line. The small rectangle marks the price level with the highest trading activity. This point is called TPO Point of Control.

Market Profile Chart Properties

Here you can find the most important parameters for this chart type.

History Length - The Market Profile is created on a tick basis. Enter the number of ticks to be loaded into the Market Profile. The history length determines how many days will be displayed as Market Profile.

Interval - This is the interval that each TPO represents in the chart. The default value is 30 minutes but can also be set to 1 hour.

Scale Factor - Enter the price span units. When the price moves by this span during a TPO, the current letter is drawn at that price level. For example, if the scale factor is "2" and the current price is at "6370" in the TPO "C", a new "C" is drawn in the line above the original one if the price moves up to 6372.

Show Gaps - Select here whether gaps in the trading (TPOs without trades) are to be displayed.

Initial Balance - Enter the number of TPOs that should be part of the start period. TPOs in the start period are labeled in a special color.

Start Time - Here the time for the market start has to be entered, i.e. "9:30" for stock trading. This is important for a correct display of the Market Profile.

Volume Type - Select here whether the volume should be displayed as Contract Volume (number of traded contracts) or as Tick Volume (number of ticks = trades for this price span; necessary for currencies, for example). The traded volumes are displayed to the left of the letters (light-green area in the example chart).

Zoom Factor - Here you can enter an optical zoom factor. The higher the number, the more the profile is magnified.Tradesignal Online Lexikon