The Benefits of Market Profiles

All right, so we've gone over what a TPO chart is. So we've covered what a TPO chart is, how it's constructed, the things that we are going to be looking at and using moving forward. Now let's talk about why. So why would we use a TPO chart? Why would we use a time price opportunity chart or market profile or a tool like this to begin with? So first we need to understand what we see normally when we look at a candlestick chart. So each one of these candles is a daily candlestick. And I have different color settings than you might have. I have white for up candles, black for down candles. And you'll see that traders will do this from time to time. And it helps remove any kind of bias you associate with any color, particularly red and green. You'll think of red in, you know, normal everyday life as being somewhat of a symbol of negativity. Or red for a stop sign, red for danger, red for caution or warning. In green, sort of green means go, green means good. Right. Green means growth. And the last thing you want to do is have any kind of interaction that occurs on the chart start to create a behavior on your part that is sort of, let's say, unwarranted, Right? So if you see a green candlestick, suddenly you're getting greedy. You're thinking of, you know, it's time to buy, because we have a big green candlestick. So the purpose of changing the colors of the candles is to remove any bias that's connected with that. But I will tell you that you end up just associating the same sort of response with the new colors that you set. Right? So now I know, obviously a big white candle, a big black candle, ultimately I know what's behind that activity. And you could say that that ultimately creates the same sort of bias in the long run. But moving along, each one of these candles is a daily candle. So It's a single 24 hour session. And there are four data points on each candle. So we have, in this case of the candle upward, we have an open, a close, a high and a low. In this case of a candle downward. Same here, same here, same here. We have an open, a close, a high, and a low. Now you might look at candles, and if you see a candle that has, let's say, more body, okay, Then candles that have more wick, you might interpret the body as, you know, a sign of presence or a sign of strength or sign that there was a lot of buying activity, aggression. Right? It's a large candle now this doesn't tell any story as to what takes place underneath the surface. So we really don't see what goes on in terms of where we spent the most amount of time and where the most volume was transacted. So that's why we look into something like market profile and volume profile, why we use both of them together. So if we use this candle, for example, so we're going to go to the 23rd. So we have the 23rd right here. If we were to look at this on a 30 minute time frame, this is that day session. So a big move upward. All right, So a big move upward ended up closing right around here. Again, if you look at this on a daily candlestick, you don't really know what goes on up here unless you're going to go through every single candle scrolling all the way back into your lower timeframes to really see that ultimately if you went onto a five minute chart, it's even more as to what occurred specifically at these levels. Now when we use market profile, we get a complete picture. So here's that same candle, here's the candle, the 23rd, we see the open. So I'm going to just zoom in slightly so we see the open right here, the close as indicated by the red triangle. And one thing should stand out. We closed right here. If we look at this, that's the close right there. But the truth is that most of the volume actually took place above the close. So here's the close. It's right under 7,500 and most of the volume and most of the participation, or rather presence. So presence and participation. When I say participation, I mean volume. When I say presence, I mean time. So how much time we spent in the area? Most of both of those were spent above the close. Okay. So most of the volume, most of the time in this daily session was spent above this candle. Close. So you wouldn't know if you're just looking at a daily candlestick that we closed below where most of this participation and presence occurred. So this candle is an imbalance candle. You might not necessarily know that by just looking at the daily candlestick. Right. You might not necessarily know that in the center of this candle. So if we look at this daily candle, again, that there wasn't really any substantial volume in the middle of that candle. It's pretty imbalanced from open to close. It was pretty one sided. We came back decently. We had a large response where we barely spent any time at the high kickbacked most of the volume above the Close. You wouldn't know that this was so imbalanced necessarily. You know, this a daily candle can look like a trending day where this could be all filled out. You know, this particular candle we see that this is more of a double distribution and it's very imbalanced. And we're going to get into all of those obviously. So by looking at market profile, we get a complete idea of what occurred throughout this session. And we're going to be looking at obviously market profile for 24 hour periods. And we went over how each one of these bars within is one half hour period throughout that day. So we get a complete idea as to what's taking place within this structure. Right. It organizes data in a very easy to understand visual manner. Right. So rather than looking at multiple candle closes on a 30 minute time frame, on a 5 minute time frame, and all this back and forth very quickly, we can see in a case like let's say for example the 24th, where on our daily candle this is more of a spinning top, large wick to the downside, large wick to the upside, barely have any open, close distance. When we look at this on the TPO chart, we see that this is a relatively balanced structure. We see that slightly more volume and participation occurred above the close, but it is fairly balanced. Right? So we immediately have some level of context that if we open up today and we opened up right outside of this day, we would see immediately where we were sitting with regards to where most of the volume occurred and where most of the time was spent. So it immediately begins to shape the market in a way that is not seen unless you're using a chart like this and paying attention to the distribution. So we could think of these types of distributions and when we look for balance structures in particular as the type of balanced Gaussian distributions that you look for in a regular distribution chart. And we shared this on the roadmaps and we'll be referring to those time and time again because ultimately there's a lot of theory there. And we go over a bunch of this stuff where we're looking at ultimately something like this balanced distribution. And this will be when we talk about looking for developing value. This is a balanced structure, right? Where we have 34%, 34% right outside of one standard deviation or one standard deviation is 68%. So this is the sort of balanced structure. And we would see this on market profile and be able to say that that was a balanced day. Balanced day with more of a response at the low because very quickly the market came out of that area. Slightly more presence in the high, but a balanced structure overall compared to a day structure like this. And only through looking at this type of tool can you really begin to put things in context and organize data in this manner. Otherwise, if we were to open up this structure and look at everything as it is unraveled, you don't really get a complete idea, right? You don't really have an understanding of where we spent the most amount of time. You don't have an understanding of where we spent the most amount of volume. You don't know if those two even confirm each other. So this again helps us organize data in easy to understand visual display. So immediately you could see whether or not something is balanced. Okay, relatively balanced. So we'll look at a few charts on here that are balanced or TPOs. This is a balanced structure, as balanced as it gets within this area. This is the most balanced structure down here. And then your imbalanced structures, which are your trends. And a trend is a market that is moving from balanced area to new balanced area to new balanced area. Less balanced structures are very obvious. This makes it very clear when the market is in balance or in imbalance, meaning out of balance when it's not balanced. So this helps us get a daily idea of our environment type, current daily context, and how we are evolving through time. This also makes it very easy to see significant levels moving forward. So just as an example, just pull this forward. I can get this change this drawing tool. We can see, for example, let's say that this is the current day we're in and we have none of this over here. We could see immediately that there is a significant gap within what looks like a pretty substantial structure in this daily candle. Right? Very big candle to the upside, you know, looks like a powerful daily candle moving up through a level, no resistance. Okay, now we can see immediately where the next area of friction and significant level is. If we were to lose this structure, so if we were to gain acceptance back into this gap, and these concepts will obviously be going over it on the further modules, but we could immediately see that the next area, if we're looking at this window right here, and let's say that we're currently in this day, the next area of a significant level is within this daily structure. So it's a prior day. Okay, it is a prior day. It's from April 23rd, and it is a high volume node within that day. So market profile helps us really contextualize and shape our environment in a way that is not as visually obvious when you're just looking at a candlestick chart. When you're just looking at this, you might not necessarily know that over the course of a few days that we were in balance. Right. You might not necessarily know when we're coming out of balance. Okay. You're just looking at arbitrary highs and lows, maybe using daily closes, weekly closes, things that do have more strength, but then on the lower time frames, you're kind of just building a story as it goes off of things that are really not that substantial. When you look at something like market profile, we'll get further into this. What we can do is we could begin to combine the area within a range and, and to see, okay, within the last three days. Now I know what the context of this structure was. Were we in balance? Were we out of balance? Okay, is most of our volume at the high or is it at the low? Like down here, where is volume being and value being established over time? So this is why we use market profile. It helps us organize data in a very easy to read manner in that we can immediately see markets in balance. We're looking for a break from balance. Market is trending, it's constantly re establishing value. We're able to do all these things in a very fast manner. And this is how we're going to be sort of establishing the levels that we're going to be looking toward when we combine order, flow and market profile.