Timing low and high volatility swings in the market using a rather famous technique called market profile trading indicator is a great way to earn more profits, whether in stocks, forex, etc. However, to maximize its advantages, one has yet to know the fundamentals and principles underlying the said indicator.
This video will teach you the basics of the market trading indicator and the different ways on how you can use it – methods that in today’s market, which may help you tremendously in your trading career.
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Market Profile Trading
Welcome to this video on swing trading the market profile trading indicator. What we’re going to look at here today is a rather popular technique called market profile, but the way I use it is a little different than the classic way. The classic approach is to use 30-minute increments – I am using 30-minute bars here, but they don’t really normally use bars. They use what’s called TPOs and that stands for time price opportunity; it’s certainly a fine, legitimate way to use it, but I’ve just decided to simplify things. So in market profile, I take two things only, and that is the value area high and low – that’s what these Magenta lines are. This is the value area high and that’s the value area low. Now, what are those lines? What those lines are is they tell you where 70 percent of trades took place the previous day.
So you’ll notice that the lines are actually the same two days in a row. So this day, 70 percent of the trades occurred between these two lines and you can kind of see that. But these two days pretty much were the same – their price range was essentially very close to the same. So what we have here, what this tells us, and how we can use this in our trading is the concept of expansion and contraction. Similar to Bollinger bands, triangles, wedges – things that are contracting patterns, this is another type of contracting, low volatility signal.
Market Profile Trading Strategies
So we get to the low volatility signal for two days. Well, what do we expect after a low volatility, there’s actually a cycle between low volatility that then turns into high volatility. Now, we’re looking for a breakout of this range. And what’s cool is that if you looked at the high those two days, it would be here. But if you look at the value area high, it comes in much lower and you could potentially get in earlier into a trade than if you break out or if you trade the breakout of the previous day’s high. One of its advantages is it can actually get you earlier in a new trade and then it just runs these very clear lines, very horizontal lines – that concrete nice patterns for you.
So, as you can see this, we go from low volatility and high volatility. And, of course, the benefit of that from a practical point of view is that high volatility markets have the potential to make us big money, fast. That’s fun to see the P and L go green really fast. That’s why I like to trade these low volatility to high volatility cycles. Now, other than looking for expansion contraction patterns, another one is for trends. Here is a pattern for trending; by the way, I’m showing you for swing trading, holding two, three days, you can also use these levels on day trading if you’d like. But I really prefer, well, I use it on all my charts actually.
Market Profile Trading System
So it’s really great. I should mention here too, if you’re wondering where to get these levels, you really need to talk to your software provider and see if they offer them. Now, this is a trend, and look at how clearly this marks a trend – it’s just a different way of, well, mapping it on your charts so it’s very clear. Again, I call this stairstep pattern. So, go up one, there’s the next step two, there’s the next one and three. And you can kind of think of this almost as a five wave pattern if you will – we’re going to try to draw some lines here. So that would be one and that would be two down here. Actually, if you want to draw it on this, you could just draw one, two, three, four, five – draw on the actual lines themselves.
And the bars are going to come into little different places obviously because the horizontal lines only update once a day. They just stayed the same place all day long. Although there are some variations of this that do update intraday, I haven’t used that. I just prefer to use a traditional approach. So you can see nice stairstep pattern and it takes out some of the noise that could otherwise shake you out. And five waves is about average, that’s about normal. So, if you get five waves, you’re doing good. So then you can’t go more and, of course, you can go less. But I find that five is about the average and good a place to take some money. Actually, we can just stay here in this slide and see where it goes.
Market Profile Trading Rules
So the same thing, but now we go into a downward trend, the opposite of this. And we’ve got basically the same pattern, but now upside down – I kinda like to show things both from a bullish and bearish perspective. So there’s your one and there’s your two – actually one, two, three, four. And then goes down just a little bit for five. Now, the market goes down way beyond that, but, of course, the reason is that this valley area low is measuring from this day, the previous day. And if you notice too, this is very significant. Pay attention to this one, this retrace here. In fact, let me a redraw this – I don’t want to get too messy here. I want to be as clear as possible. Now, as we go down, we make an impulse move down and we barely retrace.
So that’s a very good bearish continuation pattern. We don’t like retraces to be too steep. We don’t want a lot of buying to come into the market. Now, this strong impulse moved down and now we just go straight across again. That’s good because it means there’s not a lot of bullish buying coming in against our downtrend trade. Now, we get a different type of retrace. This one is not as favorable. We don’t like this one as much because it comes up to the lower line, which is the value area low. But it also goes up to the value of your high. So you might be wondering, does this thing have to stay below the valley area low during the entire trend? Preferably, yes, that makes trading so much easier.
Market Profile Trading Setups
However, remember that this zone between the value area high and low is a neutral zone and, therefore, it really hasn’t gone into bullish territory yet. It would have to get above the area high. So this retreat, this is still acceptable. Just makes it a little tougher if you want to keep tight stops. But from a technical point of view, it is still a bearish trend. And if you could psychologically stay in there through that, then you’re golden because it does actually go down and make another low. So again, one, two, three, four, five, and that’s going to be real – your optimal point to exit and take some profits.
Rubber Band Trade Strategy
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BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.
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