ChAPter 17 Market Profile
L e a r n i n g O b j eCt i v e sAfter studying this chapter, you should be able to:■ Understand how to interpret the market in terms of its balance between price and value
■ Use Market Profile to define trends and consolidations
■ Identify and differentiate between short‐ and longer‐term market participant activity
■ Understand the difference between responsive and initiative buying and selling in the
markets
■ Calculate the value area in term of Time Price Opportunities (TPOs) and volume
■ Determine if there is upside buying or downside selling pressure in the markets over
the short and longer termM
arket Profile is essentially the charting of the balance between supply and
demand, in terms of the level of agreement between price and its perceived
value. It is an extremely useful way of viewing market action in terms of whether
the participants believe prices are fair or unfair, disadvantageous or advantageous,
with respect to their shorter‐ or longer‐term outlook. And unlike conventional
charting, trends are determined with respect to the previous day’s perception of
fair value. This makes Market Profile an indispensable form of analysis to the seri-
ous practitioner of technical analysis.17.1 The Search for Fair Price or Value
The price discovery mechanism unfolds in response to the overall market partici-
pants’ belief as to whether prices represent a fair reflection of value. If market par-
ticipants do not perceive value around the current prices, they will react accordingly
by buying or selling the market, causing markets to move or trend toward an area
where they believe prices are a true reflection of value. This agreement between price
and value is wholly dependent on the perceptions of market participants.