Market profile is a method of market structure analysis developed (and registered) by J. Peter Steidlmayer.
Market profile falls under technical analysis, but it draws from different data than your typical TA indicators. It can provide a fresh piece of the puzzle even to traders who already use a lot of technical analysis.
It is most used on legacy markets where there are various charting software packages available.
To learn about what market profile is and how it was developed, get the Steidlmayer’s book “Steidlmayer on markets”.
What is Market Profile
Market profile is a technical analysis method that statistically splits a trading day’s activity by price of executed trades.
3 most important data points market profile provides:
- the current range boundaries (support and resistance): At which prices are people suddenly not willing to buy or sell anymore, forcing the market to retrace back?
- the phase of the market:
- Is it a “responsive” market, with the tendency to always return to a mean price, like in sideways markets?
- Is it an “initiative” market, where a small trend picks up and does not tend to return to its past means, like in trending markets?
- the point of control: Market profile identifies the “value”, or the point of control (POC), as the price level that generated the highest traded volume of the day. This is where the market perceives the price as fair that day.
A perfect market would paint its market profile as a perfect bell curve statistical split. On real markets the curve will be skewed but still similar.
The bell curve is formed by “time-price opportunities”, TPOs, which are boxes or letters stacked on each other. Each box marks a representative price that was traded during a timespan. For technical analysis on the 1D scale, each block usually represents a 30 minute timespan.
Market profile also shows where the market opened, that’s the blue line on the left.
The most basic information you can get is the market phase: If the market opened at a different price than where was yesterday’s fair value, how did the traders react? Did the market return to the previous mean and formed a high volume area there, or did it generate high volume at a new price level?
This is an illustration from Sierra Chart software:
Where to get Market Profile for crypto?
There is a free TradingView script based on Steidlmayer’s market profile. It is called simply “Market Profile”, published to Tradingview in 2020 by LonesomeTheBlue.
Does Market Profile work in crypto?
Steidlmayer first started developing market profile in the 50s. He had to completely change his trading strategy in the 60s and onwards, when funds came to existence. This changed the structure of the market as until the 50s the market was pretty much all retail.
When all participants have similar amount of money, technical trading works better. Once there are players with outsized stacks, the main rule becomes “market can stay irrational longer than you can stay solvent”.
Market profile as a tool for technical analysis works on any market. Below is a 2013 recording of Steidlmayer’s lecture on market profile and how to adapt it to modern markets.
The same YouTuber, DayTraderPro, has more recordings with Steidlmayer’s lectures if you’re interested.
Best Tools for Market Profile