Profits from understanding where value is established and when price moves away from value
| Strategy Type | Auction Theory / Time-Based Volume Analysis / Value Discovery |
| Market Outlook | Profits from understanding where value is established and when price moves away from value |
| Risk Profile | Moderate - Requires understanding of auction theory concepts |
| Reward Profile | High potential for swing trades and day trades based on value |
| Time Horizon | Day Trading to Swing Trading |
| Iv Environment | Works in any environment; based on time-price distribution |
| Breakeven | Entry price +/- distance to value area edge |
| Primary Instruments | ES, NQ (highest volume), CL, GC, ZB (liquid markets) |
| Micro Contracts | MES, MNQ for learning and smaller position sizes |
| Regulatory Framework | CFTC regulated; Market Profile is a CBOT/CME developed concept |
| History | Developed by J. Peter Steidlmayer at CBOT in the 1980s |
| Trading Hours | 9:30 AM - 4:00 PM ET (Regular Trading Hours) • 6:00 PM - 5:00 PM ET (nearly 24 hours) • RTH profiles most significant for intraday |
| Session Selection | Most common - 9:30 AM to 4:00 PM profiles • Separate overnight and RTH profiles • Full Globex session in one profile |
| Tax Treatment | Section 1256: 60% long-term, 40% short-term |
Popular platforms: Sierra Chart (excellent MP tools), NinjaTrader (with add-ons), ThinkorSwim (TPO profiles), TradingView (basic), ATAS, MarketDelta. Most require understanding setup and configuration.
TPO (Market) Profile shows time spent at price. Volume Profile shows volume at price. Both are valuable. TPO is better for understanding when value was established. Volume Profile shows where significant transactions occurred. Many traders use both.
By 10-11 AM you usually have clues. Narrow IB with breakout = Potential trend day. Wide IB with rotation = Normal/rotation day. Double distribution forming = Inventory adjustment. Watch IB extensions and profile shape.
No. Daily profiles are used for day trading. Composite profiles (weekly, monthly) are used for swing trading. The concepts apply to any timeframe - Understanding value and auction behavior.
POC is the price with most time spent (TPO-based). VWAP is volume-weighted average price. They're calculated differently but often near each other. When aligned, the level is very significant.
When you identify a double distribution forming (two separate value areas), trade toward the new value area. Once there, trade that value area normally (fade edges to POC). Single prints connecting the distributions often get filled.
Very reliable over time. Studies show 80%+ of naked POCs get touched within 20-30 days. They're strong magnets. The caveat: Timing is uncertain. Use naked POCs as targets when you have a setup pointing toward them.
For day trading, RTH profiles are primary. Overnight extremes become reference levels. If RTH opens inside overnight range, expect continuation. If outside, watch for gap fill or extension. Split profiles give more detail; merged gives bigger picture.
Average IB requires more context. Look at: Open type, early extension attempts, comparison to recent days. Be more selective with entries. Wait for clearer signals rather than forcing a narrow/wide interpretation.
Look for confluence. If TPO POC and Volume POC align, extremely significant level. If Value Areas align, strong zone. Use TPO for time-based context, Volume Profile for transaction-based significance. Both pointing same direction = Higher confidence.
Calculate: Overlap % = Overlapping range / Prior VA range. High overlap (>50%) = Balance, expect rotation. Low overlap (<30%) = Trend/shift, expect continuation. Track this metric daily to identify regime changes.
Institutions target value areas for execution (VWAP/TWAP algorithms). They accumulate/distribute in balance phases. They push price to find new value when repositioning. Understanding this helps identify institutional footprints in profiles.
Calculate historical profiles programmatically. Define metrics (IB width ratio, VA overlap, distance to naked POC). Create rules based on metrics. Test on historical data. Walk-forward validate. Challenges: Profile calculation requires tick data.
Reset after: Major fundamental change (Fed surprise, earnings shock), significant technical breakout with acceptance (price stays outside composite VA for 2+ days), or when prior context is clearly no longer relevant. Otherwise, keep building composite.
1) Day type identification takes time (clear by midday). 2) Works best in liquid markets. 3) Profile shapes can be ambiguous. 4) Requires experience to read correctly. 5) Not predictive alone - Best with other tools. 6) Backward-looking (shows what happened).
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