Market Profile

Prices fluctuate during the trading day and will be at many different levels depending on the range of the given day.

In the early 80s, J. Peter Steidlmayer compared volume, also known as price action, with the time of the day in a graphical pattern. He called this Market Profile™ (the Market Profile is a registered trademark of the CME Group). The Market Profile™ divides a day into thirty- minute segments and then distributes the price action into a graphic illustration with price as the vertical axis and time as horizontal axis. The price action can be contract volume, tick volume or both.

A = 8:00am to 8:29am        
B = 8:30am to 8:50am        
C = 9:00am to 9:29am etc.

Market Profile Chart Example

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In a normalized statistical distribution, 70% of the value on a bell curve falls within one standard deviation of the average; in the Market Profile™ , this area is known as the VALUE AREA. A value area is where roughly 70% of the trading volume takes place during the last trading session. The upper range of the value area is called the top of the value or Value High (VH); the lower end of the value area is called the bottom of the value or Value Low (VL).

When most of the price action is concentrated around a small range of prices, it’s considered a single distribution day, forming one bell curve on the graph. When two bell curves are present, it means that the price action settled at one price range and then moved to another level, where the rest of the action was concentrated. This is know as a double distribution day. The Market Profile™ assigns a letter to each thirty-minute segment within a calendar day. All the trades that occur within one thirty-minute segment are symbolized by one letter. The price with most letters is called the Point of Control.

Stay tuned for the Next Market Profile™ Lesson

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