Trading with Market Profile

here is a Volume Profile chart from the start of the month
(you can use any length of time)

shows where the most volume took place

both high volume and low volume levels are good to play off of

 

Looks like 878 (loosely) has proven to be support so far. It will be interesting if the LOD gets taken out if we sell off into the 864 area.

 

as a resitance area... The today's pivot R1 for ES is 879.83, we seem to be struggling with it since we dropped below it.

 

We'll see if 878 provides good resistance today. 880.75 is the pivot, would this be close to the uvl?

 

TPO = Time Price opportunity (a point on a Market Profile chart where price has traded, represented by a the letters A,B,C,D,E,F,G,H,I,J,K,L,M,N – each letter representing a 30 minute period of the day, A/9:30 – 10:00, B/10:00 – 10:30, etc…

POC = Point Of Control (the price at which the most TPO’s are in the Market Profile chart)

VA = Value Area (70% of the days range, in general the POC will fall near the middle of the Value Area
UVA = Upper Value Area
LVA = Lower Value Area

HVL = High Volume Level (the price at which the most volume has been traded) most of the time this lines up with the POC, but not always

IB = Initial Balance (the first hour of the trading day)

CR = Closing Range ( the last hour of the trading day)

NOTE: when a day has a small range many times Pivot, Support 1 and Resistance 1 will be close to the POC, UVA and LVA - personally I have found the MP levels to be tradable(for my style) where as the others could only be used as reference points

 

How do you go about determining the Value area? If it is 70% of the day's range, is it a simple statistical exercise to put the value levels after 15% of the activity on each side of the range? Is there a reason why the value area is defined as 70% and not some other % like 90% or 80%?

 

to get the excact Value Area you need to count TPO's

The Value Area is where price was accepted by the "majority" of the market participants

When Steidalmeyer and the CBOT developed market Profile I am sure their research found that 70% was the cutoff, thats probably the only reason.

many traders use many indicators, range division(retracements/projection), swing hi/lo's for the level they want to trade off of

for my style of trading I have found the 3 levels created by building a market profile of yesterdays data and the levels created by looking at 5 and 20 day profile charts to be the most reliable

one quick example;
the market gaps up, the market begins to sell off, where will it stop? at yesterdays highs? maybe, many traders will jump in at that level only to have the market go down another few points in to the previous day's range and stop them out, I have found that it will have it's best playable bounce at the previous day's Upper Value Area.

 

That's a phenomenal win rate. What did you study to learn about this stuff? Any good websites? Did you have any good trades today?

 

here they are kiddies, don't hurt yourself

ES
======
UVA 884
POC 881
LVA 876.75



$TICK
=======
UVA 864
LVA -350

 

http://www.tedtick.com/steid.htm
http://www.zapfutures.com/archives/daltarch.htm
http://www.cisco-futures.com
http://www.wiu.edu/users/miag/facstaff/tpd/tpdhome.htm