Market Profile comes from the idea that markets have a form of organization defined by time, price, and volume. Every day, the market develops a certain range and within its limits. The "Value Area" (VA) is a basic component of the "Market profile" methodology. So let's know about the Value area in the Market profile;
What is the Value area in the Market profile?
- The value area represents a zone of some equilibrium, where the number of buyers and sellers is equal. Here in this area, you can find price changes often.
- The Market Profile captures these movements, providing an opportunity for traders to correctly interpret this information both in real-time and after a trading session.
- The value area shows a price range that reflects the interests of most buyers and sellers.
- The goal is to show traders where "cost" is set and provide areas for low-risk, high-reward trading based on a few simple rules and strategies.
- One of the most popular ways to use the value area connects the trading activity of the current day with the value area of the previous day.
- One of the best examples of a valuable domain is the familiar shape of a normal distribution curve.
- Sometimes you will find a skewed curve, but the ease of displaying information provides traders with a new way to objectively observe where other market participants place their orders and help identify value levels.
If you learn these basic trading rules, then it is easy for you to create a good trading strategy. And these strategies help you in trading in any market condition.
One of the key advantages of studying the Market Profile is that you can know the theory of the exchange auction. Equip yourself with a+ set of skills that will stay forever. One thing you can be sure of is the auction in the market.
By learning and practicing the classic Market profile trading strategies below, you will begin to gain confidence in trading with a reasonable methodology that you can rely on.
Market Profile trading strategies
Trading Strategy 1
You can find a strong bullish signal when the market opens above the value area and can stay higher on subsequent tests. If the market begins to trade in the value area and the volume grows, you must exit long positions.
Trading Strategy 2
When the market opens above the value area, but then begins to trade two 30 minute bars down in a row back to the value area, there is a high probability that the price will pass completely through the value area and test the minimum area.
Trading Strategy 3
When the market opens below the value area, but then begins to trade two 30 minute bars up in a row back in the value area, there is a high probability that the price will pass through the value area and test the maximum area
Trading Strategy 4
Another strong bearish signal is when the market opens below the value area and can stay lower on subsequent tests. If the market begins to trade in the area of value, and the volume grows, you must get out of short positions.
Trading Strategy 5
When the market opens in the area of value, it shows signs of a balanced market. The "reciprocal" nature of trading is preferable to the "proactive" one.
Some other factors are;
Initiative sales
When the market opens and remains below the value area, it shows a strong bearish signal and the downside moves should not fade. Often this type of trading activity is the result of the actions of traders trading on higher time frames who are interested in selling and will put pressure on prices during the trading day. Dealing with this type of movement can be exhausting and very unprofitable. Identifying a selling initiative by assessing where the current market is trading relative to an area of value can help to be on the right side of the market and protect against being crushed by a powerful bear market. The best market profile trading strategy on a day showing proactive selling is to sell on rebounds upward until proven otherwise.
Response activity
Here the price trades outside the value domain. So it encounters the opposite momentum and deviates back into the value domain. This type of activity is often present when the market trades in the value area and attempts to trade outside for a long period.
Return purchase
- In the first scenario, the market opens up in the value area and attempts to trade below it. Buyers enter the market and drive the price back into the area of value. This shows that return buyers entered a market that trades below value and took advantage of low prices. This strategy works well with sideways market movements.
- The second scenario occurs when the market opens below the value area and buyers immediately begin to enter the market. This can be evidenced by prices moving above the opening when buyers "respond" to a price below the cost. For a minimum cost area, a good initial goal is necessary. When this type of return purchase occurs, the 80% rule will likely play a role, which means that in 80% of cases the price will go further to the maximum area of value.
The reverse is true for Responsive Selling. Hope this article is helpful to you. Share your views now. For more information like this, stay tuned with us here!
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Well its a great idea only if you have perfect knowledge of the market or you have an expert guidance.
Their expert advise helpd you in earning good money from the market.If you feel that there is a possibility of a further rise in price, you can always re-adjust your stop-loss level accordingly.
Always square off the open tradesDo not confuse buying intraday positions with being an investor.
• Do not go against the marketYou cannot challenge the market.
Even though you may have done lots of research and analysis on a particular stock, it may not move as per your expectations.
What looks like a bull market may soon change its course in no time.
