A market profile chart can be useful for both short-term and long-term investments. It combines price and volume information to display price, volume, and time frame on a single chart. The data, later, indicates the value area and the points to control for a stock.
Besides, it also uses standard market data. Thus, the charts do not need level 2 market data. Sometimes, people also call market profile charts as the Sierra chart scale, volume profile chart, or Sierra Chart’s TPO (highest bid, ask size, bid size).
Ways to Read Market Profile Chart
Market profile charts show the price (on the vertical scale, y-axis) and the volume (on the horizontal scale, x-axis). Meanwhile, for the time frame, this chart uses a combination of colors and/or colors.
Many people who use this chart think that understanding the volume and time frame can be more complicated than understanding the price. The way this chart displays the price is similar to any other trading charts.
The longer horizontal line within the chart shows a greater amount of trading volume. People usually call the price within the chart as the point of control. That is because the price controls most of the market.
The time frame in the chart shows in letters and/or color. If it is letter, then every letter shows a unit of time frame, like 5 minutes or an hour.
On the other hand, if the 15-minute chart uses color, each color represents every 15 minutes of trading. That way, traders can easily see a particular price that has been traded recently.
Other than that, you need to also understand several indicators that can highly affect your trading. One of them is selling and buying tails. That represents the lowest buying and selling TPOs for the trading period.
Ways to Use Market Profile Chart for your Trading
You can use market profile chart for either your complete trading system or as a part of your larger trading system. In both systems, market profile charts are mostly traded based on support and resistance prices.
If you are a day trader, you can trade bounces (at a support level) from the recent point of control. On the other hand, if you are a swing traders, you can trade breakouts (at a price that have passed the support or resistance level) of the point control happened yesterday.
