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 and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

How to Read Market Profile Structures: Market Profile Tutorial

2 min read

In the past, we discussed Different Market Profile Structures. Generally, most of the traders who study market profile for the first time gets a little excited about the profile distribution patterns and start anticipating or predicting what profile distribution day it could be. This is a wrong approach as Market Profile is more of a visualization tool to understand the market participant’s behavior and to learn the ongoing auctions from the way profile structure is getting formed.

So What to read from the Profile Structure?

Who is in Control?

Profile structure reveals what kind of market participants (intraday, short term, intermediate, long term) are currently trading this market. Intraday traders & Short term traders often arrive at visual reference levels such as prev day’s high/low, multi-day high/low, and early morning high/low.

Monitoring such a reference level during intraday via split profile helps traders to understand where the trading money is coming from and competing. Trading money often doesn’t mean retail traders alone some of the funds, family offices or institutions, prop-desk too at times involved in short-term speculative bets. Even the algos which are run by most of the traders are nothing but mere trading money (intraday or short-term positional trades).

Via profile structures, one can understand how trading money is competing in the markets. Not every trading money is a weaker hand but most of the trading money responding at visual references is considered as a weaker hand.

Listening to the profile structures also reveals stronger hands as well in the form of double distribution, multi distributions, single print zones, and elongated profiles with good pullback lows.

Traders Emotions

Market Profile is one of the tools which provides deeper insights into the ongoing trader emotions. How much of emotions are associated with the traders? Extreme the trader’s reaction is more the odds of a bigger trading opportunity.

Emotions can be revealed via profile structure in the form of
1)Excess/Tails
2)Bulged Structure
3)Poor Structures
4)Spikes
5)Neutral Extreme Days
6)Emotional Selling below Value Area
7)Emotional Buying above Value Area
8)Stealth Auctions
9)Single Prints
10)P shape/ b shape structures
11)Gaps

The tempo of the Market
Tempo refers to how fast the markets are moving in real-time. It is more of a nuance where traders have to focus to understand the market environment. If is more of a habitual thing an active trader has to adapt.

The market varies its speed all the time. some times it frustrates the trader with grinding slowly during intraday and sometimes it frustrated the trader with chopping out with faster price fluctuations. Some of the Bear Traps / Bull Traps can be identified by paying close attention to the Tempo.
Most of the mid-day fast price-action outside the value area high/low is mostly associated with bull/bear traps.

Value Area & POC Formation

Value Area & Point of Control is one of the information a trader has to focus on while trying to understand the underlying auction nature. In a strong up-trending market, the value area keeps building higher and in a strong down-trending market value area keeps building lower indicating acceptance of the price level.

Whereas not every trend is strong. Some of the trends is slow by nature where price keeps going up with value area overlapping to higher and price going down with grinding slow and auctioning higher with value area overlapping to lower.

And some trends even go sideways where value area is mostly overlapping or bound to trade in a band flip-flopping by forming mixed higher and lower value area zones.

Both value area & POC needs to measured relative to the ongoing trend but not to look into isolation alone.

Monitoring Todays developing Value area & POC helps the traders to limit their trading expectations and to attempt trading with reasonable & Meaningful targets.

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 and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

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