Market Profile
Market profile organises price by time spent at each level using TPO letters. Learn auction market theory, profile shapes, day types and how traders use it.
Market profile is a way of organising price data by how much time the market spent at each price level during a session. It was developed by J. Peter Steidlmayer, a trader at the Chicago Board of Trade, in the 1980s, and it is built on auction market theory: the idea that markets move up and down to find prices where trade is facilitated between buyers and sellers. Volume profile is a later cousin that measures volume instead of time.
TPOs: time price opportunities#
A market profile chart divides the session into time periods, traditionally 30 minutes each, labelled with letters: A, B, C and so on. For every price the market traded during a period, that period's letter is printed at that price. Each letter is a TPO (time price opportunity).
Over the session, the letters stack up sideways, building a distribution. Prices with many letters were traded during many periods: the market spent a lot of time there. Prices with few letters were visited only briefly.
| Concept | Meaning |
|---|---|
| Initial balance | The range of the first hour (the first two periods) |
| POC (TPO) | The price with the most TPOs, the most time spent |
| Value area | The range containing about 70% of TPOs |
| Single prints | Prices with only one letter, marking fast moves |
| Range extension | Trading beyond the initial balance |
Auction market theory in brief#
- Markets auction up to find sellers and down to find buyers.
- Fair value is where both sides trade comfortably, and time builds there.
- Excess is a quick rejection at an extreme, often shown by single prints or long tails at the top or bottom of the profile.
- Balance is when price rotates within a range; imbalance is when it moves directionally to find new value.
See Acceptance and Rejection for how these ideas apply to reading levels.
Profile shapes and day types#
| Shape or day type | Description | Implication |
|---|---|---|
| Normal day | Wide initial balance, little range extension | Balanced, rotational day |
| Normal variation | Range extension on one side | Mild directional move |
| Trend day | Narrow initial balance, persistent extension one way, thin profile | Strong directional conviction |
| Double distribution | Two separate value areas joined by single prints | A shift in value during the day |
| P shape | Fat top, thin bottom | Often short covering or buying late in the session |
| b shape | Fat bottom, thin top | Often long liquidation or selling |
How traders use market profile#
- Identify the day type early and choose responsive (fade) or initiative (follow) strategies accordingly.
- Use prior value areas and POC as reference levels for the next session. See Point of Control and Value Area.
- Watch the initial balance: breaks of it on volume can signal range extension.
- Look for excess: long tails at extremes suggest those prices were rejected and may hold on retests.
- Track single prints: gaps in the profile from fast moves, which price often revisits.
Market profile vs volume profile#
| Market profile | Volume profile | |
|---|---|---|
| Measures | Time at price (TPOs) | Volume at price |
| Origin | 1980s, Chicago Board of Trade | Later, enabled by detailed volume data |
| Strength | Shows how the auction developed through the day | Shows where actual size traded |
Many traders use both; when they agree, levels are stronger. See Volume Profile.
Limitations#
- Learning curve: the concepts and terminology take time.
- Session definitions: profiles depend on how sessions are defined, especially in 24 hour markets.
- Interpretation: day type classification is partly subjective.
Common mistakes#
- Fading moves on trend days because price is outside value.
- Applying stock session rules to 24 hour markets without adjusting.
- Treating profile levels as precise lines.
Frequently asked questions#
What is market profile?#
A charting method that shows how much time the market spent at each price during a session, using letters for each time period.
What is a TPO?#
A time price opportunity: one letter printed at a price for each time period in which that price traded.
What is the initial balance?#
The price range of the first hour of the session, used as a reference for whether the day is likely to be balanced or trending.
Sources#
- Wikipedia, Market profile
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