Market Profile, from Leo Jia

August 14, 2013 |

According to my reference "A Market Profile is an intra-day charting technique (price vertical, time/activity horizontal) devised by J. Peter Steidlmayer".

Price is plotted on the y axis.  At the end of the day using tick data a histogram or probability density is plotted in the x direction showing essentially how much time was spent (or how many contracts were traded) at a given price level. (For those interested there is a video presentation on the CMEgroup web site).

Some Chinese trading software has this feature built in. The volumes corresponding to price levels can be shown together with the price chart.

Years ago when I first discovered it, I was very fascinated as it appeared to work very well as a very good indicator for support and resistance levels. But later I found that it was only calculated (or simulated) and did not contain real facts, and I haven't paid too much attention since.

The issue I had is this. Say at some point someone bought N number of shares of a security at price X. Clearly, the software has no problem of recording volume N at price X, but the problem it has is to correctly remove the volume of the current seller(s) that was previously recorded when they bought. As a result to me, the volume profile might just be a guess work.

Did I miss something? Any comments on how one can better use this feature?


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