Basic Building Blocks of Market Profile

Market Profile Types

Understanding Market Participants
Market Profile Open Type

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Market Understanding + (Self Understanding x Strategy) = Results.
James F Dalton
 Tools Books

Ninjatrader + Market Profile Mind Over Markets – Jim Dalton

MarketDelta Markets in Profile – Jim Dalton,
InvestorRT (Linnsoft) Jones

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The Only chart with 3D View of Market.
Time
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Volume

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Market Profile was developed by legendary CBOT trader Pete Steidlmayer in 1984. It
shows where the auction of trading instrument, explains where the crowd trades most
of the time for the day, where trading volume is accumulated most of the time, where
trading volume is minimal or absent.
Market Profile is not a time based chart rather it organized the trading data and charts
the relative frequency of trading at various price levels. By organizing the trading data
in terms of profiles (Alphabets) one can study the market structure and market
dynamics. Typically Day profile is meant for Day traders where each and every day a
free-flowing graphical format called profiles are plotted as shown above.
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The study of markets has always been about the effects of Price and Volumes and if you
get to see what price and volumes are doing in your chosen timeframes, then you need
nothing else. There are indicators built to study the effect of price on instruments but
Market Profile and Volume Profile especially, is about going inside the price and Volume
Bars and seeing for yourself what is going on inside that 5 minute or 30 minute or 1 day
or 1 week or 1 month even 1-year bars.
Market Profile is too powerful a concept to be used for only intraday trading. For us, the
utilities of this powerful methodology go much beyond.
In Market profile we see the movement of price as an auction between buyers and
sellers negotiating value during the day across time frames.
It is an alternate way of studying the market to understand what market is trying to do.

The Market Profile is simply a way of organizing market activity as it unfolds.

How Market Participants are reacting when market hits a certain price level.

Are the traders getting into trade emotionally?

Who is driving the market?

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Where most of the weaker hands likely to keep their stops.

Is distribution or accumulation happening in the market?

Market is Trending/ Mean Reverting?

There is just no greater indication of what the market is doing than the market itself!
- James F Dalton
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 (Market Profile is a Evolving Real-time Database)

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Standard Deviation:- Dark blue is one standard deviation on either side of
the mean. For the normal distribution, this accounts for 68.27 percent of
the set; while two standard deviations from the mean (medium and dark
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blue) account for 95.45 percent; three standard deviations (light, medium,
and dark blue) account for 99.73 percent; and four standard deviations
account for 99.994 percent. The two points of the curve that are one
standard deviation from the mean are also the inflection points.
Initial Balance (IB)
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Point of Control (POC)
Value Area (VA)
Buying Tail
Selling Tail
Single Prints

Buying Tail
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Point of Control (POC):- Point of control is the price where most of the trade
for the day happens. In other words the price where more number of TPO’s in
a row. Today’s on going POC levels are represented as DPOC (Developing POC)
and Yesterdays POC (YPOC) and Previous POC levels are plotted as dotted
green lines as shown above.

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Initial Balance (IB):-The first 60 Minutes of a trading day are called the initial
balance. As the name suggests, the IB tries to set up the day's balance or
define value for the day. The IB is important for the type of open to be
monitored.

Value Area (VA):- The Value Area shows the range where 70% of the trading
has taken place, on either side of the POC, and is marked by
the violet side bar to the right of the TPO's.
TPO:– TPO or Time Price Opportunity is the basic building block of Market
Profile. Each and every letter in the chart represents a TPO. Which in turn
represents a point of time where the market touches a price. Each
consecutive letter denotes a 30min period of Market Activity. In our example
as shown below the letter ‘A’ represents how the price traded for the first
30min. Letter ‘B’ represents next 30min of activity. And Letter ‘C’ and ‘D’
represents subsequent market activity details and so on.
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Value Area High (VAH):– The upper level of value area. (upper Red Bracket
Level). YVAH – Yesterday’s value area high is marked as Red Dotted Line.

Value Area Low (VAL):- The lower level of value area. (Lower Red Bracket
Level). YVAL – Yesterday’s value area high is marked as Blue Dotted Line.

Single Prints:- When there is only one TPO in a Row. From the above picture
you can identify that Letter ‘D’ and ‘L’ are single prints.
Range:- High-Low range for the day.

Open Range:- First 60 minutes of the market movement range. It is

represented as the Blue Vertical lines in the Initial Balance (IB).

Range Extension:– An extension of price above or below the initial balance.

High Value Node (HVN):- An HVN is a price area of high TPO count or volume.
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The market traded for a long time at this level. These often form support or
resistance levels when the price re-visits the area.

Low Value Node (LVN):- An LVN is a price area of low TPO count or volume.
The market did not trade for very long time at this level. These often form
support or resistance levels when the price re-visits the area.
Market Generated Information. Reflects auction process in the market.
Market Profile Shows how the price got distributed in any given day/week.
Replaces 30min bar with Letters/Blocks.
Every 30min a new letter will form.
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Letters/Blocks are referred as TPO’s (Time Price Opportunities).
All the letters are pushed to the left hand side of the profile.
Learn Basic Blocks of Market Profile.
Understand Traders Behavior, Confidence.
Understand Auction Process.
Understand Key Reference Levels.
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Understand Likelihood of stop loss levels.
Practice Possible Auctions.
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 (Two Way Auction Process)

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Balanced Market:- It defines a range bound market(sideways) or a bracketed
market [where price rotates within the bracketed range]. Balanced markets
shows there is lack of conviction among the other timeframe buyers and
sellers and typically results in a two way auction process and the price
movements occur withing the range.
The above image shows a typical balanced profile (Bell Curve Shaped) where
the price rotates within the price range [11765-11715] for the whole day.
Volume plays an important role in Market Profile. When Prices move outside a
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balanced area, or trading range, without the presence of volume, it tends to
return to the area. Generally the participation of the Longer Timeframe
trader(Buyers and Sellers) are minimal and they don’t have a strong influence
in the market direction. The whole day is either controlled mostly by shorter
timeframe traders or the locals (Day Trader). Such rotational days provides
very minimal opportunities for a day trader.
Balanced Market Occurs:-
1) Before any bigger economic events, news are expected (e.g. RBI policy
announcement, FED meeting ..etc.)

2) Consolidation in the market after the uptrend or downtrend.

3) Low Participation from the Other timeframe players or Institutional players

(Christmas & New Year holiday season).
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4) Lack of liquidity(both buy side and sell side) in the market.

The result of this price rotational process is the discovery of prices that are
acceptable to both the buyers and the sellers.
Imbalanced Market:- It represents a trending market (uptrend or downtrend).
Imbalanced market shows the conviction of other timeframe players. The
auction is said to be one sided or directional where there are either more
Buyers than Sellers or more Sellers than Buyers depending on the direction of
price.
Imbalance of buyers will drive the prices higher till the buyers exhausted and
the sellers takes control of the market. And the Imbalance of Sellers drives
the market lower till the sellers get exhausted and the buyers takes control of
the market. twitter@piyushkaggarwal
The above picture shown the imbalanced profile. The days are typically
elongated and vertical. And the range extension is typically one sided most of
the days. Range extension confirms the presence of other timeframe players.
Typically these days are fast and highly volatile and the risk reward ratio for
the day trader is much higher on trendy days.
Imbalanced Market Occurs When ?

1) Major economic event days (RBI rate decision day, Election Results Day, GDP
Announcements…etc.)

2) Major catastrophic events.

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3) Opening Gap Up or Gap Down days due to major positive or negative news
impact.

4) Strong Global Markets Sentiment.

Scalpers Retail Traders
Algo Traders Day Traders Pro Traders
Shorter Timeframe Traders DII
Medium Timeframe Traders FII

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Broadly we can classify the market participants as day traders and OTF
(Other timeframe traders).
Day traders come to market each day flat (no position) and leave the
day flat.
Day traders provide liquidity in the market.
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Day traders are more often emotional and highly leveraged.
OTF (Other timeframe Traders) are basically positional traders. They
could be shorter timeframe traders, Medium or Long term traders.
OTF traders are the major market movers.
Price Moving above or below Initial Balance (IB) is called Range
Extension (RE).
Range Extension indicates the presence of OTF timeframe traders.
Initial Auction i.e 1st hour in the market is dominated by Day Traders.
Day Traders don’t cause any major move in the market.
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One Sided Range Extension causes directional move in the market.
Two sided range Extension shows both Buyers and Seller OTF are
present in the market.
 (Directional OTF dominating)

Range Extension – An extension of price

above or below the initial balance.

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 (Both OTF Present)

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Single Print:– A single price level where
you can find only 1 TPO. Found
generally on the high and low extremes
of the profile.
Buying Tail:– Single TPO’s ot the bottom
of the profile. More number of TPO’s at
the top followed by counter auction
more aggressive buyers are present.
Selling Tail:– Single TPO’s on top of the
profile. More number of TPO’s at the top
followed by counter auction more
aggressive sellers are present.
Tails represents the presence of OTF
traders.
Length of tails indicate aggressiveness
of OTF traders.
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Initiative Buying:- When Other
Timeframe traders (OTF) auction
the market beyond the Value Area
High.

Initiative Selling:-When Other

Timeframe traders (OTF) auction
the market beyond the Value Area
Low.

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 (RB and RS)

Responsive Buying:- when Other

Timeframe traders (OTF) Buy the
market below the Value Area Low
rotating price back inside the
Value Area.

Responsive Selling:- when Other

Timeframe traders (OTF) Short
the market above the Value Area
High rotating price back inside
the Value Area.

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Normal Day
Normal Variation Day
Trend Day
Non Trend Day
Neutral Day
Double Distribution Day

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Normal is a balanced market profile.
It has a wider balanced profile compared to (Both OTF Present)
Non Trend Day.
Happens when there is a news release post
previous days market hours or due to global
market sentiment(too negative or too
positive).
This action is followed by range extension on
the direction of the sentiment and the long
term traders or investors are responsible for
the such action (driving the price outside
(which can be identified with single prints)
the range extension) Dull Boring Day.
Price rotates near center of the profile and
the maximum participation happens at the
center of the profit.
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No one is control of this market type and the
risk reward ratio is higher for a day trader.
Price generally rotates near center of the
profile and the maximum participation (Both OTF Present)
happens at the center of the profile with
higher volumes at the POC (point of control).
Single prints(Buying tails and Selling tails) on
both the sides indicates lack of conviction
among both the other time-frame buyers and
sellers. Profile shape looks like a perfect bell
curved shape.
No one is control of this market type and the
risk reward ratio is higher for a day trader at
the extremes. More wider the initial range,
more risk-rewarding for the day trader.
However, the profile is low risk rewarding for
new shorter term traders or long term players
(who holds the position for more than a day) as
the market closing is very close to the center
of the profile.
A Profile day with wider initial balance with no
range extension is also considered as normaltwitter@piyushkaggarwal
day.
Normal Variation Day is typically an
imbalanced profile and the day is
dominated by large timeframe players
(Buyers or Sellers). Long time-frame
players are waiting for the market to
settle down where they consider the
price to be fair and then they take
control who drives the market
aggressively post 11.00a.m or 12.00p.m
with the range extension outside the
initial range. The range extension is twitter@piyushkaggarwal
more than 2 times the Initial Range And
the Initial Balance is typically smaller
than the normal day but higher than the
trend day.
Trend day is an imbalance
profile where the day is
controlled by the long
timeframe participants and
the conviction is very strong
among the long timeframe
players right from the
beginning of the market. A
Perfect Trend Day looks
like low of letter A > B > C >
D in a uptrending market and
the high of letter A > B > C >
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D in a down trending market.
However price overlap in
A,B,C,D may occur.
Non Trend day is a balanced market profile.
No Risk Reward from a day traders perspective.
Non Trend day is a balanced market profile which
occurs before an major economic event, news,
earning result outcome to happen resulting in
lack of participants and a typical dull boring day.
Range (high-low) for the day is very compressed
and the risk-rewarding nature for an intraday
trader is very less. Market likes to auction both
the sides centered to the point of control. Only
scalping the market favors an intraday trader on
these non trend days.
Non Trend Days are mostly inside day where the
current day’s range is within the previous day’s
high-low range and the price rejection (at high or
low) happens near to the previous days high
volume node. There is no range extension on
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either sides which shows lack of other timeframe
traders and the price rotates within Initial
Balance. Market shows very low volatility and the
Initial Balance is very small.
Neutral Day (Center) Neutral Day (Extreme)

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Neutral Day is a balanced profile where initial range is smaller than Normal day.
Both the Other timeframe buyers and other timeframe sellers are Present. They
don’t trade directly each other but the intraday trader will act like a mediator
between both the larger time-frame buyer and seller.

Range Extension happens on both the sides however, it will be a failed Range
extension which brings the price back into the Initial Balance range and the
price rotation happens there. Range extension tails will be very minimal and
such range extension twitter@piyushkaggarwal
confuses a trader to assume as normal day or normal
variation day during the development of profile but the failed range extension
pushes the price to the other side of the edge and trade back and forth. Such
profile days occur generally when the VIX is higher.

If the price closes at the center, then it is called Neutral Profile Center and if
the price closes at the extreme edge of the profile it is called at Neutral Day
Extreme.
Double Distribution is an imbalance profile
where Initial Balance is small and the first
price rotation (1st Balance Region)
happens at Initial Balance. Then, the
larger timeframe traders take control and
drive the price in one direction.

In the later session, another price rotation

happens at the other side of the edge(2nd
Balance Region). Both the price rotation twitter@piyushkaggarwal
regions should be separated by single
prints. Risk-Reward Ratio is typically
higher for a day trader during Double
Distribution Days.
Represents Shorting Covering rally
in the initial auction.
letter A or B forms the bottom with
single prints in the Initial Range
and market opens at the bottom of
the profile.
The price rotation happens at the
top of the profile (i.e at the range
extension area).

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Represents liquidation of Longs.
letter A or B forms the top with
single prints in the Initial Range
and market opens at the top of
the profile.
The price rotation happens at
the bottom of the profile (i.e at
the range extension area).

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Lower in Non Trend Day, Normal Day.
Neutral in Normal Variation Day and Neutral Day.
Higher in Trend Days and Double Distribution Day.
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Non Trend Day – Narrow IB
Normal Day – Wider IB
Normal Variation Day – less than Normal Day IB
Trend Day – Narrow IB
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Double Distribution Day – Narrow IB
Open Drive
Open Test Drive
Open Rejection Reverse
Open Auction in Range
Open Auction Out of Range

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Open Drive exhibit maximum
confidence from the OTF timeframe
traders.
Opens Gap up and Never got back
into the previous day range.
Opens Gap up and Trades in the
same direction of the previous day.
Low made in the first 30 min never
taken out throughout the day.
Witnessed more in Bear market
counter rally.
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Price Opens with Gap above/below
Previous days value area.
Confidence exhibited by OTF
timeframe traders is less than that
of Open Drive.
Opens Gap up and got back into
the previous day range or value
area in first 30min.
Once test is over Trades in the
same direction of the previous day.

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Price Opens with Gap above/below
Previous days value area.
Looks like a Open Drive.
But soon it faces resistance and
later aggressive buyer /sellers enter
into the market and drive higher
/lower.
Emotional traders get caught in this
action.
Happens especially at the end of the
bear market/bull market.
Market Participants are less
confident of such opening. twitter@piyushkaggarwal
Price Opens within Value Area.
And Trades lackluster, Sideways.
No Confidence from the OTF
Participants.
Happens near to the end of the
Bull/Bear Market with Overlapping
Value area .
Open Auction denotes distribution.

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Market Open Outside Previous days range
OTF timeframe traders are present
Can see One Time Framing (OTF)
movement and these can be large range
days.
There will be a higher level of conviction
by responsive as well as initiative buyers
or sellers.

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