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Market Profile is a trading tool based on Auction Market Theory, which views the market as a continuous auction between buyers and sellers. It organizes price movements into patterns, showing where most trading happens and helping traders identify key price levels. Unlike complex methods involving math or physics, Market Profile focuses on observing price behavior to distinguish trading days (good opportunities) from non-trading days (uncertain or slow periods). This makes it important for traders as it highlights key price levels, identifies market patterns, and determines the best time to trade. By using Market Profile, traders can save time, reduce risk, and improve decision-making, ultimately trading smarter by knowing when to act and when to wait.
Market Profile is a way of organizing data. It organizes data in such a way that it reveals various AMT principles in real time.
In a MP chart the regular bars and candlesticks are replaced by letters (one letter for each 30 min bar is the most common setting). These letters are then collapsed on to the price axis to give it a distinct shape, which sometimes resembles a bell curve.
Auction Market Theory explains how buyers and sellers interact in a market to determine the price of an asset. It works just like a real-life auction, where prices move based on demand and supply:
This theory helps traders understand how the market moves and where the most activity occurs, making it easier to spot patterns, trends, and trading opportunities.
It is the cycle in which the markets move up and down through various stages such as Accumulation – Mark Up – Distribution – Mark Down and sometimes the intervening stages of Re-accumulation and Re-distribution.
Auction Market Theory proposes that all financial markets work like an auction. That the price will move higher in search of sellers and price will move down in search of buyers.
Once the price has move low enough to uncover buying strong enough to stop the down auction, a new auction up will begin.
Market Profile Charts can be used effectively along with AMT principles to trade low risk opportunities in financial markets.
When price stays within the initial balance the whole day the day type is called as a Normal Day.
When price moved outside of initial balance in subsequent periods, but does not create a range greater than twice the initial balance the day is called a Normal Variation Day.
When price forms a narrow balance to begin with and then BO/BD from that balance and then form a second balance in the same day, the day type is called a double distribution trend day.
When price extends range beyond the IB in both directions and closes within the value area, it is called a Neutral Day.
When price extends the range in one direction and then moves in opposite direction and extending the range at the other end, as well as closing on the extreme, is called a Neutral Extreme day.
OIR
When prices open inside yesterday’s range, we call it Open Inside Range.
The range development potential is limited.
OOR
When prices open outside yesterday’s range, we call it Open Outside Range.
In this scenario the range development tends to be wide, and dynamic moves can be expected.
Open Drive (OD)
Open Drive exhibit maximum confidence from the OTF timeframe traders
Opens Gap up and Never got back into the previous day range
Opens Gap up and Trades in the same direction of the previous day
Low made in the first 30 min never taken out throughout the day
Witnessed more in Bear market counter rally
Market opens and test beyond a known reference to check for any unfinished business, if not found we resume the drive.
Second most confident opening.
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