Understanding Market Profile
Definition of Market Profile
Market Profile (or MP) was officially introduced in 1984 by J. Peter Steidlmayer in collaboration with the Chicago Board of Trade (CBOT) as a means of graphically representing price acceptance or rejection over time. A Market Profile revealed a new way of looking at markets, and paved the way for more rational and relevant market analyses.
A Market Profile is a graphical representation that combines price and time information in the form of a distribution. A Market Profile is used to determine elapsed time, number of ticks and volumes traded at specific prices, or over a price interval, over a given period. A Market Profile also makes it possible to identify prices accepted or rejected by the market, and to identify resistance or support price levels to anticipate future price movements.
A Market Profile is not a technical indicator but an image that shows where the most traded price is and what the volumes are at each price level. It determines when the market will move from equilibrium to imbalance.
How to create a graphical representation of a Market Profile?
With a "traditional" representation using Japanese candlesticks, the highest and lowest closing price is used. For a Market Profile representation, a column of letters is plotted for each half hour (A for the first half hour, B for the second, etc.). Every half hour, the price concerned is allocated a letter for the corresponding half hour. These letters are also called TPO (Time Price Opportunity) and are registered each time the price sweeps into a new price zone.
NB: with a Market Profile, the volume corresponds to the number of passes within the same price zone.
When the session is over, all TPOs are cumulated on each price level (like with Tetris).
A Market Profile then makes it possible to distinguish the value at which the price has been the most often and for the longest time. The Control Point or "CP" shows the most traded price level (or price range) on the Market Profile.
The "Value Area" of the Market Profile indicates the price range in which at least 70% of trading took place.
NB: The TPO and the "Value area" are not always displayed. There are different Market Profiles on the net.
Here are two charts to clarify the construction of a Market Profile
On this first chart, all the prices touched (all the prices of a classic candlestick) were allocated the letter of the corresponding half-hour.
All TPOs are then compiled to highlight the value levels at which the price has been for the longest time and the most often.
Download Market Profile
- On ProRealTime, Market Profile is only accessible if you have the PREMIUM version.
If you have the PREMIUM version, click on the "Graphics properties" icon from a chart. In the "Price Properties" window select "Market Profile" from the list of graphic styles.
- On MetaTrader 4 and 5, the Market Profile is available in different forms; free or paid.
Here are three Market Profiles to download for free
1 / Download the MQL4 file of this Market Profile
Overview of the first Market Profile download
2 / Download the MQL4 file of this Market Profile
(This Market Profile displays the "Control Point" and the "Value Area")
Overview of the second Market Profile download
3 / Download the MQL4 file of this Market Profile
(This Market Profile displays the "control point" and distinguishes the US/Europe/Asia time ranges using three different colours)
Overview of the third Market Profile download