Get started

TPO

Market Profile vs Volume Profile: Which one is a better tool?There is an ongoing discussion within the trading community about which tool is better for analyzing market behavior: Market Profile (MP) or Volume Profile (VP). The former was popularized by Jim Dalton in his book "Mind Over Markets," while the latter has many advocates as well, including Peter Reznicek (aka ShadowTrader). With the release of the new "Time Price Opportunities" (TPO) indicator by TradingView, we can now closely examine the disparities between the two and explore which one works better. For starters, I won't delve into explaining what Market Profile is and all its related artifacts (e.g., TPO, single-prints, poor high/low, etc.). TradingView has done a commendable job explaining key concepts in the indicator description. For those seeking more, Jim Dalton's "Markets in Profile" is a recommended resource, an easier and more up to date reading than the original book. Additionally, there are numerous free webinars available on YouTube. Both MP and VP serve similar purposes: 1. Assess day character by analyzing shape of intraday distribution (price-time/price-volume) 2. Identify important levels that are not visible on the standard bar chart (VAH, VAL, POC) 3. Spot structural weaknesses and anomalies. The key difference is in the basic building block: Market Profile uses time at certain price level whereas Volume Profile uses volume. Let’s look at AMEX:SPY chart to explore the differences What stands out is that intraday distributions are nearly identical. There are slight differences in key levels (VAH, VAL, POC) but they are negligible. Note how on Wednesday, the price first retests Tuesday's VAH, then Monday's VAL, then again Tuesday's VAH. After confirming support, it rallies up the next day. From the perspective of the stated goals, we can efficiently achieve the first two, regardless of the tool we use. The third goal is a bit tricky and requries a seperate long discussion. So I won't dwell on it here In overall, we can see that Market and Volume profiles are pretty much alike and it doesn’t make much difference which one you’ll be using. Or does it? So far, we looked at the regular hours chart (RTH). What about futures and similar instruments that trade 24 hours? Let's look at CME_MINI:NQ1! chart Here, the difference in distributions and levels is much more pronounced. The best example is Friday where not only POCs are completely misaligned but even the shapes of distribution (MP is more like a bullish p-shape, whereas VP is a bearish trend day). The disparity in distributions is explained by the difference in volume traded during regular hours (high volume) and extended hours (low volume). Due to this asymmetry, Volume Profile is always heavily skewed towards RTH. Meanwhile, Market Profile is session-neutral, giving the same weight to overnight and regular hours TPOs. Understanding of disparity doesn’t answer question of which tool is better. For example, when it comes to key levels, price sometimes respects MP levels and sometimes VP ones. My take is that we need to pay attention to both when they are pronounced. Good example is Tuesday’s prominent MP POC. Although it was built up overnight on low volume, it was revisited the day after and acted as resistance. To conclude: For tickets that trade primarily in the regular session (or if you look on RTH session chart only) there is no difference whether to use Market or Volume profile. Both provide same information. (note that volume data on lower timeframes depends on your broker and/or whether you buy real-time data from exchange; reliability of volume data is a separate discussion topic). If you’re trading 24h instruments I find more useful using MP as it can give important information about non-regular low-volume sessions. For RTH, it will still give the same results as VP. You can also use a combination of two but then you’ll face a challenge of reconciling difference in distribution shape (like the Friday example). As there is no clear answer how to do it, I recommend sticking to one tool at a time. P.S. I have not done any research on very low timeframe (<5m) for intraday accumulations/distributions. As MP was originally developed to analyze day character (Jim Dalton suggests using 30m TPO) it might not be well suited for lower timeframes (e.g. if you trade within 1h range), and this is the area where VP has advantage. Another point to consider is that currently TradingView provides a wider range of VP tools, incl fixed range, anchored, etc…
AMEX:SPYEducation
by hermes_trisme
4
Showcase of the Power of Market Profile AnalysisMarket Profile analysis is a powerful tool for traders and investors alike to analyze price movements in financial markets. The method is based on the concept that price moves in a predictable way, forming patterns that can be observed and analyzed. The Market Profile chart is a visual representation (not shown here) of market activity, displaying the distribution of price over time. The chart is divided into horizontal sections, each representing a price level. The length of the bar indicates the duration of time during which trades occurred at that price level. The Market Profile chart can be used to identify areas of price support and resistance, as well as areas of high and low volume. The three key components of the Market Profile chart are the Point of Control (POC), the Value Area, and the Single Prints. The Point of Control (POC) is the price level at which the highest volume of trades occurred during the period under analysis. It represents the most actively traded price level during that time frame, and is often seen as a key support or resistance level. The Value Area is the range of price levels that contain a specified percentage of the total trading volume during the period under analysis. The Value Area can be used to identify areas of price support and resistance, as well as potential trading opportunities. Single Prints are price levels where trading activity occurred but did not overlap with any other price levels during the period under analysis. These are areas where price discovery occurred, and can be used to identify areas of potential price support or resistance. By analyzing the Market Profile chart, traders can gain a deeper understanding of market dynamics and make more informed trading decisions. The chart can be used to identify areas of price support and resistance, as well as potential trading opportunities based on the volume and duration of trading activity at specific price levels. Between end of Dec 2022 and end of Jan 2023, the price of the S&P 500 index (SPX) showed major reactions to the price levels drawn by using Market Profile analysis that was done in Oct 2022 . This is a prime example of the power of this trading method. By identifying key levels of support and resistance, traders were able to make more informed trading decisions and take advantage of market opportunities. In conclusion, Market Profile analysis is a powerful tool for traders and investors who want to gain a deeper understanding of market dynamics and make more informed trading decisions. By analyzing the distribution of price and volume over time, traders can identify key levels of support and resistance, and take advantage of market opportunities. The example of the S&P 500 index (SPX) in October of last year showcases the power of this trading method, and demonstrates how it can be used to make profitable trades in a dynamic and ever-changing market.
OANDA:SPX500USDEducation
by PtGambler
💎 Analyzing the Various Shapes of Volume ProfilesVolume Profile is a tool that shows how much volume (i.e. the number of trades) is happening at different price levels for a given asset. It is used by traders to analyze order flow and make inferences about market direction, support and resistance, and potential reversal areas. The patterns in a Volume Profile may appear random at first glance, but there are certain recurring shapes that can be used to make predictions about the market. 🔵 P-Shaped Volume Profile A P-shaped Volume Profile is a chart pattern that typically occurs when a market experiences a sharp rise followed by consolidation. The lower part of the P-shaped profile represents low volume rejection, while the wider upper part shows an increase in trading activity at a "fair" price. These patterns are often seen during uptrends, but can also indicate the end of a downtrend and a potential short covering rally, which is seen as a bullish signal. 🔵 b-Shaped Volume Profile A b-shaped Volume Profile is a chart pattern that forms when a market experiences a sharp decline followed by consolidation. It is the opposite of a P-shaped profile and is often seen during downtrends. The upper part of a b-shaped profile represents low volume and an "unfair" perception of price, while the wider bottom part shows an increase in trading activity and a balance between buyers and sellers. If a b-shaped profile appears during an uptrend, it could potentially indicate a reversal. These patterns are generally seen as bearish signals, as they often represent longs exiting the market. 🔵 D-Shaped Volume Profile A D-shaped Volume Profile is a chart pattern that occurs when there is a temporary balance in a market. The Point of Control (POC), which is typically located in the center of the profile, indicates an equal number of buyers and sellers. Some traders view a D-shaped profile as a sign of a choppy or sideways market without a clear direction, while others see it as an opportunity to anticipate a potential breakout in either direction as institutional players build up their positions. 🔵 B-Shaped Volume Profile A B-shaped Volume Profile is a chart pattern that occurs when two D-shaped profiles appear within a specific time period. It is characterized by a single value area and Point of Control (POC), although some traders may divide the profile into two separate "D-areas" with their own value areas. B-shaped profiles are generally seen as a continuation of a trend, but it is important to note which POC is more dominant, as this can indicate whether activity was highest at the top or bottom of the profile. 👤 @algobuddy 📅 Daily Ideas about market update, psychology & indicators ❤️ If you appreciate our work , Please like, comment and follow ❤️
Education
by QuantVue
2
Flawed concepts: the way they sell volume & market profilesImagine daily profiles put on each day on the chart, and let the words in purple provoke some fruitful doubts in your mind. The presented and advertised way of using volume & market profiles is essentially a way of approximating the real levels. This way is very bad. 1) The most fundamental and very obvious flaw is that it disregards the sequence of events. You can take a chart, reshuffle bars in order, or lol, just invert it horizontally. and you'll end up with different charts that have the same profile. All good bro? It's time series lol, sequence does matter. That's why you can't use profiles and non-weighted stats unless you have a very specific goal; 2) 70% rule, normal distributions & standard deviations have nothing to do with aggregated tick data. As a process, it can all can be modeled as a morphing distribution, a constant fight between normal and uniform distributions, the double auction dynamic distribution. But yeah, ofc course you can't read it in a book, gotta think for yourself a lil aye? In normal distribution 70% make sense, in the uniform one it makes sense to consider 100% (the whole distribution) as the area of interest. So overall it's somewhere in between 70 and 100. Also, confirmed with my R&D, bots give the best performance when a price channel includes 80-90% of data (mostly 80), best metrics converge around this number; The real way to use profiles is when you consciously need to disregard an order of events within a certain period and have some kind of summary of it. It's applicable when a certain period has some distinguishable significance: when levels are formed, positioned and cleared. There, you are not really interested in order of things within these events, rather in summaries of these events, there you're doing the right thing. Otherwise, POCs of 'every' period doesn't have equal significance. Summarizing volumes within a week/day/months etc, making a profile & taking 70% so you gonna get VAHs and VALs of it won't magically calculate you the real levels, only approximate em, but 4 real there are better and less computationally intensive ways of doing it, just get a box plot with 10th and 90th percentiles. This video might be really mind opening for you, I really respect it & its creator. If you wanna know how to find levels 4 real, check the linked ideas & use it with pleasure.
NYMEX:CL1!Education
by gorx1