What is Market Profile?

Market Profile is a powerful charting technique often used by the most sophisticated professionals. However, many traders are unaware that it exists, and those that do think it's too complex or difficult to understand.

In the early 80s, J. Peter Steidlmayer compared volume, also known as price action,with the time of the day in a graphical pattern he called the Market Profile (the Market Profile is a registered trademark of the CME Group).

The Market Profile divides a day into thirty-minute segments and then distributes the price action into a graphic illustration with price as the vertical axis and time as the horizontal axis. The price action can be contract volume, tick volume, or both.

TPO: The basic building blocks of the Market Profile are called Time Price Opportunities, or TPOs. Each half hour of the trading day is designated by a letter. When a certain price is traded during a given half hour period, the corresponding letter or TPO is recorded next to the price. Any time period may be selected

Once trading begins, prices can move in any direction as the day progresses. During this time, prices will be at many different levels depending on the range of the day; essentially, the S&P futures can have a 5-point range or a 50-point range on any given day.