Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in)

How to Implement Market Profile Trading Process in your Trading?

2 min read

Market Profile is more of a trading tool for short-term and intraday traders to visualize the market activity in the form of price distribution and take trading decisions based on the price distribution activity. In this tutorial, you will be learning how to implement the market profile trading process in your trading.

Nifty Futures – Market Profile with Trading References

Here are the 5 major processes that will help improve your market profile chart reading like an expert.

1)Top-Down Analysis
2)Trade Preparation
3)Identifying Trade Location
4)Trade Management
5)Trade Monitoring

Top-Down Analysis

This is the phase where we get to know the overall idea about the ongoing trend across multiple timeframes(monthly, weekly, daily). The overall goal of Top-Down analysis is to get a 360-degree perspective on the markets. It includes observing the market profile chart, identifying the nuances, deriving the market context, and marking the short-term and intraday references on the market profile charts.

Top-Down analysis is all about collecting the data but it is not a buy/sell trade decision phase. Market-generated information is collected and organized in an orderly manner.

Top-Down analysis involves collecting market volatility information, upcoming economic events, earning announcements, ongoing market sentiments/new-based sentiments, and upcoming market holidays.

Trade Preparation

Trade Preparation is more of a mental game visualizing the possible auction scenarios based on the current trading context. It is more of a what-if scenario and hence one should prepare for at least 2-3 possible trading scenarios based on the current short-term context. In this phase, traders should start cultivating odd-based thinking based on the ongoing trading context and visual nuances.

For Example,

i)what if the market opens with a gap up/gap down
ii)what if the market opens inside the range and trades inside the range
iii)what if the market does look above/below the balance and fail/look below or above the balance and accelerates?

This phase is not prediction phase based but mentally conditioning the mindset to tackle any surprise the markets are likely to throw during the live market auction. so that trades can adapt and prepare themselves to tackle any challenging situations

Identifying Trade Location

This phase is the challenging phase for the market profile trader to identify a trade location where the trading opportunity comes with lower risk to initiate trades. Traders need immense patience to identify the trade location. Very few trading opportunities arise around the open and most of the best trading opportunities happen during the middle of the trading day. It is more of a waiting game.

Screentime experience plays a major role while identifying trade location. It is not everyone’s cup of tea.

Identifying Trade location involves

1)Observing the Auction around the open
2)Monitoring the Volume flow for the day
3)Understanding the Market Confidence
4)Observing Visual References
5)Observing auctions around Short term references/ Intraday references
6)Understanding trade inventory conditions.

Trading decisions are going to be dynamic as the trader has to immerse him/herself into the auction principles to stay focused not only on the price action but also on the intraday nuances, developing market profile structures to take objective trading decisions. Mental balancing is required to flexibly adapt and trade the uptrend/downtrend/sideways markets.

Trade Management

This is the trade execution phase where once the trading opportunity is identified one should be calibrating how big/small the trading opportunity is and what kind of trades to execute to control the risk

Here is a list of methods how traders can control their risk

  1. Placing a structural stop-loss
  2. Initiating Hedged trades for positional trading (Hedged Futures, Credit Spread, Debit spread) based on the trading opportunity
  3. If the holding positions are shorter one can consider trading with naked futures/ naked options trading.
  4. Stepping away from the trade if there are no trading odds in favor.

Trade Monitoring

Monitoring the trade for continuation is one of the key processes that differentiates professionals from other traders. It is not about monitoring for stop loss hit or target hit. It is all about reasoning whom we are competing with based on the market-generated information from the market profile.

Only traders who have a continuous market profile practice and better screen time experience can think in terms of odds and evaluate the odds of market reversals or continuation of the ongoing trend in the market.

Trade Monitoring involves continually observing the weaker hand and stronger hand activity through profile structures and trading nuances and thereby taking dynamic trading decisions about where to hold the positions, continue the trade, or even add to the winning trades.

If reversing the positions from long to short/short to long what are the underlying reasons behind that?

Hope this brief tutorial helps you to implement your trading process surrounding the market profile trading context.

Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in)

What is Market Tempo – Market Profile Tutorial

Market tempo, a nuanced yet pivotal concept in trading, is the rhythm at which market prices fluctuate over a given timeframe, influenced significantly by...
Rajandran R
1 min read

The Essential Guide to Top-Down Analysis in Trading –…

Navigating the markets can feel like trying to find your way through a maze. But what if I told you there's a map that...
Rajandran R
2 min read

Short Term Correction in E-Mini Futures – US Market…

E-Mini on the Monday session ended with an uncleared poor high followed by inventory adjustment. The major short-term inventory adjustment happened after the US...
Rajandran R
44 sec read

One Reply to “How to Implement Market Profile Trading Process in your…”

  1. nice article sir, it involves almost all HEADING/TITLES one must go through in details.

Leave a Reply

Get Notifications, Alerts on Market Updates, Trading Tools, Automation & More