Market Profile Indicator

Market Profile Indicator is a technical analysis tool that was developed by Peter Steidlmayer, a futures trader and a member of the Chicago Board of Trade (CBOT). The indicator was designed to help traders understand the behaviour of market participants and identify key support and resistance levels. These levels can then be used to make informed buy and sell decisions.

What is the Market Profile Indicator?

The Market Profile Indicator is based on the concept that prices will tend to cluster around certain price levels. These clusters are known as “value areas” and are represented on a chart as horizontal bands. By identifying the value areas, traders can determine where the majority of buying and selling activity is occurring and make informed trading decisions, here are four key points to support the strategy of the Market Profile Indicator:

  • It allows traders to visualize the distribution of prices within a specific time frame.
  • It provides insight into the behavior of market participants, including whether they are buying or selling.
  • It helps traders identify key support and resistance levels.
  • It can be used in conjunction with other technical analysis tools to confirm trading signals.

Market Profile Strategy

Buy Signal

  • When the market is trading in a “value area” at a key support level.
  • When there is a break above a resistance level that was previously identified using the indicator.
  • When the market is showing signs of bullish momentum, such as a series of higher highs and higher lows.
Market Profile Indicator Buy Signal
Market Profile Indicator Buy Signal

Sell Signal

  • When the market is trading in a “value area” at a key resistance level.
  • When there is a break below a support level that was previously identified using the indicator.
  • When the market is showing signs of bearish momentum, such as a series of lower highs and lower lows.
Market Profile Indicator Sell Signal
Market Profile Indicator Sell Signal

Market Profile Indicator Pros & Cons

Pros

  • It provides a unique perspective on market activity.
  • It can be used to identify key support and resistance levels.
  • It can be used to confirm trading signals from other indicators.
  • It is suitable for use with a wide range of financial instruments.

Cons

  • It requires a certain level of experience to interpret correctly.
  • It is not suitable for use in a fast-moving market.
  • It may generate false signals in certain market conditions.
  • It may not be as accurate as other technical analysis tools.

Conclusion

The Market Profile Indicator is a valuable tool for traders who are looking to gain a deeper understanding of market behavior and identify key support and resistance levels. While it has its limitations, it can be a useful addition to a trader’s toolkit when used in conjunction with other technical analysis techniques. I would not personally use it on its own without first confirming trades using other technical indicators and price action analysis including candlestick patterns.