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Confim signal


I have been learned Market Profile for a while. I find the Value area and POT is very useful in providing support and resistance. However I would like to know how do we confirm price has reached the end after entering the value area ? Do we need to use reveral bar in 5 minutes chart to confirm ? Sometime the value area is so wide, we don't know how far the price will move in the value area befor turn around/

Please give me some advice.

Mak
Good questions Mak.

I don't see great value in using a 5 minute chart to confirm but that may have some use depending on "how" you are using it.

When looking at the Value Area and the POC the following are useful to note:
- The VA and POC are more useful during the morning because of the proximity in time to when they were created. i.e. The VA and POC come from yesterday's price action. As the day progresses, yesterday's prices move further away and have less relevance.
- As the day progresses the Developing VA and POC become more important. They show where today's value is being developed.
- Narrow and Wide VA's are not as useful as "normal" size VA's. "Normal" sized VAs appear to provide better support and resistance but I haven't tested that.
Thanks for your advise. Do you mean you only use Market Profile to trade and ignore the bar chart ?

MAK
No, I don't ignore the bar chart because I have an indicator that tracks the developing value area so I watch how the bar chart has reacted to the developing value area during the day and learn from that.
However, I don't have any oscillators or moving averages on those charts but instead have support and resistance levels (and Single Prints) on them based on Market Profile areas etc.

When possible, I use volume based bar charts instead of time based bar charts. For example, I use a 3,000V chart for the ES which roughly equates to a 1 minute chart but smooths out the inactive periods.

Click image for original size
Snapshot of ES 3000V chart just before 1pm on 21 April 2006.


This is an example of one of the charts that I'm looking at. A combo of a volume chart and MP. It looks a bit cluttered with all the lines but once you get used to the colors you can pick out the info you want fairly quickly. The pink and lime are the developing value areas and the red line is the VAH. The grey dashed lines are the IB high and low etc.
Thanks

I think you are using some basic tape reading technique to trade.
Do you mean like watching a Time and Sales window which is printing all of the trades that are taking place?
I dont know how to trigger a trade. Just like yesterday, the market test the value area few time before broken down. How do we know when to enter a long if we think the market can gain support at the value area ? Of course I know we could not know in advance whether the market will find support or fail, but just want to know how to trigger a buy signal if we assume the market will find support at the area.



By the way you are very helpful
Well we can never know with 100% certainty what the market will do at any level so we need to work in probabilities. Market Profile is based on the statistical concept of the bell curse and the probability that a price (in the past measured time period) will fall within 1 standard deviation of the median is 68%.

Using this measurement we draw a line that is 1 standard deviation away from the median on either side. These are the Value Area highs and lows. We are now assuming that the probabilities of the prices to come in the future will more likely be back towards the median once we have reached one of these levels and less likely to move outside the 1 standard deviation - i.e. the Value Area's High and Low.

If we are swing trading then we create bell curves with time periods that are more appropriate to our time frame - we use a combination of days for this profile. If we're day trading we need to look at the more recent prices and use yesterday's value areas or today's value areas or a rolling profile that looks from this bracket back 10, 15, 20 brackets etc.

So to answer your question, a classic and simple trade would be to buy the VAL and sell the VAH if the day opens inside value. There are times when this type of setup is better or worse. For example, we open in Value Area and trade down to the Value Area low but it's 2 minutes before the figures from a major economic report are released. In this case you would probably not take the trade.

Another example: You trade down to the VAL and discover that it is also the VAL for the 2, 3, 4, and 5 day profiles. You might trade twice your usual size because swing traders might also be buying here and so the probability of the market going up might increase.

I hope that this helps - thanks for your kind words.
Originally posted by day trading

No, I don't ignore the bar chart because I have an indicator that tracks the developing value area so I watch how the bar chart has reacted to the developing value area during the day and learn from that...


I received a PM asking me about this post:

In this post you mentioned you use an indicator to track developing value area- which one is that and any further info/link on this indicator is appreciated.


Here it is:
http://www.mypivots.com/articles/indicators.aspx?pack=ToolPack&indicator=DVATool