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What is the Market Profile - J Dalton Trading

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What is the Market Profile

September 5, 2013 by J Dalton Trading

The Market Proleis a unique charting tool that enables traders to observe the
two-way auction process that drives all market movementthe ebb and ow of
price over timein a way that reveals patterns in herd behavior. Put another
way, the Prole is simply a constantly developing graphic that records and
organizes auction data.
Scientists from all elds analyze information using the time-tested Bell Curve.
The Prole is based on the same principles; it compares price (the variable) on
the vertical axis to time (the constant) on the horizontal axis in order to create a

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distribution over the course of any trading day. Whether youre trading ETFs,
stocks, or futures, this time-sensitive, ever-evolving database provides realtime
insight into the forces shaping market activity.
The basic auction building block recorded by the Prole is the TPO, or time-price
opportunity. The three components of the TPO are:
1. Priceadvertises opportunity; theres a clear distinction between price and value.
2. Timeregulates all advertised opportunities.
3. Volumemeasures the success or failure of these advertised opportunities.

The Market Prole oers a charting approach that is markedly dierent than bar
or candlestick charts, which have been used historically to graph market activity.
The following graphic provides a visual comparison of the two methods to
illustrate the vital dierences in the way they portray market information. A
conventional 30-minute candlestick chart is on the left; the Market Prole,
presented in 30-minute periods, is in the center; and on the right is the Market
Prole in its nal composite form.
Candlestick Chart vs. the Market Prole

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Notice the dierence in the candlestick chart on the left, versus the composite
Market Prole on the right. The Proles unique construction produces a twodimensional display that contains structure. It reveals far more information than
the one-dimensional view inherent in conventional candlestick or bar charts,
which do not expose the character of the marketwhere the majority of
business took place, at what prices levels, and for how long. The Prole conveys
signicantly more information that provides the experienced observer with
clues about both the complexity and the nuances driving the ongoing auction.
The structure depicted by the Market Prole reects market-generated
information; it represents the actual buy and sell orders transacted in the
marketplace. This allows us to interpret which timeframes are participating, and
provides insight into inventory conditions, completion, emotional trading, and
other vital cues that are not apparent in conventional charting methods and
price-derived indicator analysis.
The Market Prole is much more than a collection of individual data points. It
graphically conveys complex information to reect a composite, broad
perspective of the market as a whole. As traders, we have the ability to more
precisely observe the ow of the markets auctions through this remarkably
useful tool. The detailed examination made possible by the Prole is distinctive,
and savvy traders who take the time to learn how to read its nuanced facets are
able to decrease risk and improve the odds of success.

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