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Market profile vs Volume profile


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Market profile vs Volume profile

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  #11 (permalink)
 SBtrader82 
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I use both TPO profiles and volume profiles. I don't think it's important which tool you use, both are very similar, but you need something to give you an idea of what is happening.
I think that for a "strategic" understanding of the market TPO profiles are really great, they allow you to understand on a "macro level" what is happening.

However if you are actually trading and not simply selling courses based on generic ideas of auction market theory, then you need something more.
Markets are exytremely competitive now, you cannot simply use TPO, you need to understand exactly where you can put a stop and where to enter.

The reason why you need Volume profile is that you need to understand where you get in and why, and to manage risk you will need to see 10min or 5 min candles, which are not visible in the standard TPo profile, based on 30 min letters.

I know there is an old man (I won't mention him) that always says, exactness kills, in his idea of the market, serious money buyers/sellers they call on the phone and say "buy/sell at market", come on!!! Something like Michale Douglas in WallStreet movie.
Don't believe in everything someone says, just because this person is old.

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  #12 (permalink)
 josh 
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One more thing about volume profiling that I don't think I've ever heard anyone mention, that I've thought a lot about recently, is the need to normalize based on notional value.

For long term profiles, the lower prices may in fact be more heavily weighted due to the relatively smaller notional size. Look at bitcoin, for example. Back when BTCUSD was < 1000, tradingview shows volume in the range of 20K-100K per day. But now that it's 5000% higher, the volumes are more like 1K-4K per day.

It's the same for other instruments as well, IMHO. With stocks, splits should be taken into account, and volume back-adjusted just like share prices. With $50K, I can buy 100K shares of a penny stock, but only 50 shares of TSLA. And when TSLA was $200, I could have bought 250 shares. Clearly, shares/contracts traded are not equivalent as the notional value of a share/contract increases and decreases.

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 SBtrader82 
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josh View Post
One more thing about volume profiling that I don't think I've ever heard anyone mention, that I've thought a lot about recently, is the need to normalize based on notional value.

For long term profiles, the lower prices may in fact be more heavily weighted due to the relatively smaller notional size. Look at bitcoin, for example. Back when BTCUSD was < 1000, tradingview shows volume in the range of 20K-100K per day. But now that it's 5000% higher, the volumes are more like 1K-4K per day.

It's the same for other instruments as well, IMHO. With stocks, splits should be taken into account, and volume back-adjusted just like share prices. With $50K, I can buy 100K shares of a penny stock, but only 50 shares of TSLA. And when TSLA was $200, I could have bought 250 shares. Clearly, shares/contracts traded are not equivalent as the notional value of a share/contract increases and decreases.

@josh yesterday I read this post before going to bed and I could not get it.... it looked wrong to me, but then I thought about it and it's actually a very interesting point that you are making.
If people use futures to hedge a position, he notional value is actually important, so as futures increasein price the notional also increase and less contracts are needed to hedge. Same applies if you need to gain exposure to the markets, since you have a certain amount of money in to invest, the notional value is crucial because you take risk proportionally to the money you have.

Thanks for pointing this out.

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 trendisyourfriend 
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SBtrader82 View Post
...
The reason why you need Volume profile is that you need to understand where you get in and why, and to manage risk you will need to see 10min or 5 min candles, which are not visible in the standard TPo profile, based on 30 min letters.
...

You can trade Value or Price action or use both. If you trade Value, your risk will always be lower than if you trade price action alone. Just think about the size of a 5 min bar and it will become obvious that you increase your risk as opposed to placing a limit order near a key value area such as a low liquidity area. Maybe you mean something else. I started to learn trading using TPO profile with a woman named Tradergirl, i think she was an ex pupil of another well known profiler and she always put limit orders at key TPO profile levels such as VAL/VAH/POC or x points above/below the prior day Hi/Lo depending on the prior day value area and current opening type. At that time volatility was very different though. Using price action alone, i would have never been able to get the same risk/reward ratio.

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 forgiven 
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market profile uses time in the way of 30 min bars . a volume profile will look very close to same out line most of the time . market profile is better because of added concepts . examples are one time framing , opening and day types , open range , range extension , opening balance or the first hour of pit trading , single prints or a better way at looking at areas of minus development , excess or lack of it , over night inventory affects on the trading day , developing value ect. ext . it is just more comprehensive .

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  #16 (permalink)
bavan666
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bavan666 View Post
I thought Volume profile was supposed to be a more accurate version of market profile, but I've seen many traders use both of them in their trading, what's the advantage of using one over the other?

So it has been nearly 7 months since I asked this question, and I've learned a lot about the use of both in this time, so I think I have a satisfactory (at least to me) answer to this now.

Market profile is much more than just the profile shape and it's point of control, you have intraday nuances such as poor high's/lows, weaker highs/lows, single prints, incomplete auctions, and in general it is much easier to identify short-term trading activity using market profiles as visual levels are easier to observe here than in candlesticks and other types of charts.

While the volume profile gives you an idea as to how the volume distribution is happening, at what prices more volume was traded, and at what prices lesser volume was traded.

So the people who are using both market and volume profiles (I include myself in this group now) are essentially using the market profile to identify short-term trading activity (And in general see what kind of traders are in control of the market at the moment to assess market confidence), and the volume profile to look at the volume distribution and see which price levels are more important than others.

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  #17 (permalink)
 Arch 
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bavan666 View Post
So it has been nearly 7 months since I asked this question, and I've learned a lot about the use of both in this time, so I think I have a satisfactory (at least to me) answer to this now.

Market profile is much more than just the profile shape and it's point of control, you have intraday nuances such as poor high's/lows, weaker highs/lows, single prints, incomplete auctions, and in general it is much easier to identify short-term trading activity using market profiles as visual levels are easier to observe here than in candlesticks and other types of charts.

While the volume profile gives you an idea as to how the volume distribution is happening, at what prices more volume was traded, and at what prices lesser volume was traded.

So the people who are using both market and volume profiles (I include myself in this group now) are essentially using the market profile to identify short-term trading activity (And in general see what kind of traders are in control of the market at the moment to assess market confidence), and the volume profile to look at the volume distribution and see which price levels are more important than others.

what is the fastest/concise learning resource that explains market profile w/o wasting time on things that don't work with identifying short-term trading activity?

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  #18 (permalink)
bavan666
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Arch View Post
what is the fastest/concise learning resource that explains market profile w/o wasting time on things that don't work with identifying short-term trading activity?

Use of market profile to identify short term trading activity was popularised by Jim Dalton, so if you want concise stuff, you can look at his courses on his website and his public webinars on youtube.

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  #19 (permalink)
MarkTekk
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bavan666 View Post
Use of market profile to identify short term trading activity was popularised by Jim Dalton, so if you want concise stuff, you can look at his courses on his website and his public webinars on youtube.

Thank you i will look into that. Have been searching for some good information about market profile.

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 josh 
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bavan666 View Post
So it has been nearly 7 months since I asked this question, and I've learned a lot about the use of both in this time, so I think I have a satisfactory (at least to me) answer to this now.

Market profile is much more than just the profile shape and it's point of control, you have intraday nuances such as poor high's/lows, weaker highs/lows, single prints, incomplete auctions, and in general it is much easier to identify short-term trading activity using market profiles as visual levels are easier to observe here than in candlesticks and other types of charts.

While the volume profile gives you an idea as to how the volume distribution is happening, at what prices more volume was traded, and at what prices lesser volume was traded.

So the people who are using both market and volume profiles (I include myself in this group now) are essentially using the market profile to identify short-term trading activity (And in general see what kind of traders are in control of the market at the moment to assess market confidence), and the volume profile to look at the volume distribution and see which price levels are more important than others.

Poor highs and lows (which are a bit silly to define using 30 minute bars, all due respect to Jim Dalton) and all of it can be seen using a volume profile and a regular bar chart.

The important thing is to understand the principles; otherwise, the chart becomes more important, and the chart style you use and all of that just doesn't matter that much. Just remember that all charts present an aggregation of past information, and can only be used to make probabilistically-informed decisions. Always defer to the market which is unfolding, and never be a slave to the chart.

Liquidity and positioning drives most everything short term ("short term" being something less than a few years), and if the profile or a chart can indicate a pattern to you that shows how you can take advantage of that, cool. If it doesn't do that, it can become a futile exercise in academic meandering and provides no real value, where value is defined by how much money you can make from it, which is the only metric that means anything in this game/business.

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