Slowly and steadily trading in the stock markets is seen as a viable option to improve one's finances by the next generation. To be a good trader, you need to have access to information; correct information will help you make the right decision regarding a particular stock. The share market is sensitive to information, and the Sensex reacts to both good and bad news, hence it is always going up and down and is never in a straight line.
There are two types of trading: short-term trading and long-term trading. Within these two types, there are various types of techniques. One of them is the market profile, which is an intraday charting technique (short-term). It was developed by J.Peter Steidlmayer, as a tool to evaluate the market value as the day proceeded. He wanted to show the graph with price in a vertical axis and time in the horizontal axis.
The graph was in a bell-shape fatter at the moderate prices with activity trailing off, and volume reduced at extremely higher and lower prices. The market profile graph was shown to the public in 1985 as a part of the Chicago Board of Trade. It included the liquidity data bank and end-of-day earnings. The trade was categorized into four pits local, commercial, member filling order for public and member filling order for the member. In addition to the data market profile provided new visual organizing data.
The objective of the market profile is to display the profile which comes directly from the data, with the vital element of initial balance, range, and price of the first hour of trading. Over a period, a few behavior patterns were recognized during the early day of the trading, like what type of traders were in control, i.e., short-term or long-term traders. To learn market profile methodology, you have to be dedicated entirely to it since you have to put thousands of hours to study the charts.
It takes anywhere between six months to one year to thoroughly understand the charts and to be able to use the information to make a profitable trade. It is pure information that will provide support to the decision you make. It will provide you complete knowledge of who is in control of the market and directional conviction. It will provide you an idea of where to trade and which trend to follow for the day based on trend conviction.
Compared to other technical analysis indicators, market profile trading strategies are completely different; you will have to unlearn the traditional technical indicators to learn this methodology thoroughly. Since a lot of hours are needed to be invested in learning this technique, you will also require three months of live observation other than the parallel reading to understand what other players or the seasoned traders are trying to do and in which direction they are steering the market.
This technique get rids of the perceptual blindness as a human being we have, which is to see what we want to see based on the limited information. It also talks about the auction of how it is conducted in the market.
In market profile trading strategies, the basic auction building block is recorded in profile, known as a time-price opportunity (TPO). It depends on three components price, time, and volume. In which price advertises the opportunity, please keep in mind that there is a distinction between price and value. Time regulates the advertised opportunity, and volume measures the failure and success of the advertised opportunity.
The final thought!
Market profile is not a time-based chart; it just organizes the data of the trading conducted and charts concerning the frequency of the trading conducted at various price levels. It organizes the data alphabetically (for each profile) so one can study the market structure and dynamics. The day profile is for the day traders where they are provided with each day with a free-flowing chart known as profiles.