Calculating Market Profile Value Area
Definition of 'Calculating Market Profile Value Area'
Calculating the Point of Control and Value Area in Market Profile ®The DVATool calculates Market Profile's ® developing Value Area (VA) and Point of Control (POC) and plots them on a bar/line/candle chart.
The Point of Control (POC) in the DVATool is calculated as follows:
- The POC is the price at which the most TPO's have printed.
- If there is more than 1 price with the same 'most' TPO's then the price closest to the mid-point of the range (high - low) is used.
- If the 2 'most' TPO prices are equi-distance from the mid-point then the price on the side of the mid-point with the most TPO's is used.
- If there are equal number of TPO's on each side then the lower price is used.
- Starting at the POC we add together the TPO's by moving in the direction of the closest price (higher or lower) with the most TPO's. We do this by moving in pairs of prices.
- If both 'next'/adjacent prices have the same number of TPO's we choose the higher price.
- We stop when the cumulative percentage of TPO's breaks 68%.
OtherThere are other ways of calculating the POC and the VAH/VAL but we believe that this is the most common and gives the most representative picture of the structure of the market as intended by Market Profile ®.
Remember that Market Profile ® is not an entry/exit system but instead it is intended to give you a picture of the past and evolving structure of the market. As such the VAH/VAL/POC are areas of interest in our trading strategies and not exact numbers that we expect to hold to the tick.
Most traders use the VAH/VAL/POC and the developing areas of the same in conjunction with other tools in order to come to their buy/sell decisions.
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