Market Profile

How To Read Market Profile Charts?

What is the Market Profile? | How To Read Market Profile Charts? | What Is Market Profile Trading? | What Are Market Profile Trading Strategies? | How To Find Great Trades Using Market Profile? | What Is POC In Trading? | What Is Value Area?

We set out to look for answers to above questions. We can answers almost all of the above questions by answering one simple question “How To Read Market Profile Charts?”

At GTTE we do this by monitoring the markets development using 5 Core Principles and 3 Smart Money Objectives. I have covered these topics in detail in my Market Profile Gateway To Profits Course, more about that later.

For the time being we will look into an example or two on how you can apply Auction Market Theory principles applied via Market Profile Charts to create good low risk trading opportunities.

Examples Of Trades Using Market Profile Charts

So we will look into an example below. These example is not in hindsight, i shared it in real time in my Private Slack Group. To get into my Slack Group just fill in the form below.

So without wasting any more time lets dive into out examples.

Example 1 – 12 July 2017

Chart 1

As we can see in first chart there was a spike down on prior day. We opened inside the spike and went outside yesterdays range to the downside. But found support the lows of yesterdays demand zone marked by purple line. We found support in ‘B’ period and then started moving higher entering YR once again. This behavior told us that sellers may have lost interest in the downside for the time being.

When sellers lose interest in the downside the auction usually moves up to find sellers. Always remember the auction move up to find sellers and moves down to find buyers.

Chart 2

Then the auction came back to the same demand zone marked as green rectangle in the chart 2. We can see a nice test in ‘F’ period. Now we had some conflicting developments rightly termed by James Dalton as cognitive dissonance. We have a test in F period telling us that sellers have confirmed their lack of interest to the downside and we have a lower value area forming suggesting that sellers are accepting lower prices.

Now we always give preference to value area placement over other structural clues. Unless there is a compelling evidence to suggest otherwise, going against value is not a smart thing to do.

Chart 3

This is where things get interesting. We see prices forming a small balance in the area of ‘A’ period selling tail from morning. There was some intent by sellers in this zone and it was quickly rejected. The thing about areas of rejection is when they are revisited they should be rejected quickly once again. But here we see prices trading there for multiple time periods, this was a sign for potential absorption of supply by the Smart Money which was there in the morning, this is where we look for an opportunity.

Whenever we get market developments contrary to the expected development we get interested in the markets. This was precisely such a situation. Expected behavior was a quick rejection from the ‘A’ period area on account of lower value area placement. But we got acceptance and that is when we went ahead and bought with a view of test of the HVN from yesterday at 23700 marked in the first chart itself.

Chart 4

So what happens next, we get the expected follow through to the absorption seen in chart 3. We do tag the 23700 level and go even further closing right at the highs. This also increase a chance of higher opening for the next day, but that discussion we will do some other time.

So this is how we try to figure out what the Smart Money is doing and then place our trades in the direction the SM wants the markets to go.

Want To learn More?

This is how we analyze the markets. We do not look for fixed setups and do not put trades in anticipation of market movement. Rather we try to understand what the Smart Money is trying to do and then try to place the trades in the direction the Smart Money wants to move the market.

This approach gives two distinct benefits,

  1. It gives you compelling reason to stay out of the markets unless you see the SM getting busy. That increases your chances multi-fold of getting decent move out of the markets. Rather than just putting in a trade and then waiting for the markets to move. Also if the expected behavior does not play out you can get out of the markets without waiting for your SL to hit based on logic.
  2. Also it reduces the stress in trading considerably. As you are looking for SM behavior and response of the markets instead of just levels without any rhyme or reason, you feel confident as you are in control of your actions.

Now in the above example we saw one of my favorite AMT principle of absorption playing out. There are in total 5 pairs of Core Principles in AMT and there are 3 Smart Money Objectives which you can track. This along with the framework we use you can easily understand what the markets are trying to do, instead of guessing or having to do the dreaded “punch the order and pray” strategy.

If you are interested in LEARNING more about the Core Principles and Smart Money Objectives click on the button below.

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