What it is
Market profile was developed by J. Peter Steidlmayer at the Chicago Board of Trade. Instead of reading candles left to right, it stacks activity by price, so you see which prices the market treated as fair and which it rushed through.
It is drawn on the price chart for each session. It needs several candles inside each day, so use a 1 hour or shorter chart.
How it is calculated
1. Group candles into sessions (days). Only whole sessions are profiled. 2. Split each session's range into price bands and share each candle's activity across the bands it touched, by volume where the feed has it, otherwise by candle count. 3. The band with the most activity is the point of control (POC). 4. Starting at the POC, add the next busiest bands until 70% of the session's activity is inside. That is the value area, with a value area high and low. 5. The high and low of the first hour of the session are the initial balance.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| sessions back | 5 | 1 to 30 | How many recent sessions are profiled. |
| value area % | 70 | 30 to 95 | How much of the activity the value area holds. 70% is the standard. |
| initial balance (h) | 1 | 0 to 6 | How many hours from the session start make the initial balance. 0 hides it. |
How to read it
How to trade it
- 1
Mark yesterday's value area high, low and POC on gold or US30 15 minute.
- 2
Entry trigger: price opens below the value area, then closes back inside it. Many traders then buy for a move across value.
- 3
Stop: below the low made outside value, often 6 to 10 points on gold 15 minute.
- 4
Target: the POC first, then the value area high.
- 5
If price holds above the value area high instead, trade the break with the stop back inside value.
The move across value is proved wrong if price closes back outside the value area it had just re-entered.
WickSpeak draws each session's profile, POC, value area and initial balance on the chart and writes a plain-English reading of where price sits against value, how to trade it and what would prove it wrong.
Best markets and timeframes
Use 5 minute to 1 hour charts so each session has enough candles. It suits US30, NAS100 and gold, which have clear daily sessions.
Common mistakes
- Using it on a 4 hour or daily chart, where each session has too few candles.
- Treating the POC as a wall instead of a magnet.
- Forgetting that a session here is a calendar day, which may not match your exchange's session.
Works well with
Questions traders ask
What is the difference between market profile and volume profile?
Volume profile stacks traded volume by price over any range you choose. Market profile does it session by session and adds the initial balance, focusing on how each day's auction developed.
What is the value area?
It is the price range where a set share of the session's activity happened, 70% by default. Its top and bottom are the value area high and low.
What is the point of control?
The single price band with the most activity in the session. It is where the market spent the most effort and is often revisited.
What is the initial balance?
The high and low of the first part of the session, 1 hour by default. A break of either side shows which way the session is extending.