welcome to this video on swing trading the market profile trading indicator
what we're going to look at here today is a rather popular technique called
market profile but the way that I use it is a little different than the classic
way the classic approach is to use 30 minute increments and I am using 30
minute bars here but they don't really normally use bars they use what's called
T POS and that stands for time price opportunity and that's certainly a fine
way legitimate way to use it but I've just decided to simplify things so a
Barker profile I take two things and two things only and that is the value area
high and the value area low and that's what these magenta lines are here so
this is the value area high and that's the value area low now what are those
lines what those lines are is they tell you where 70% of trades took place the
previous and day so you'll notice that the lines are actually the same two days
in a row so this day 70% of the trades occurred between these two lines and you
can kind of see that that these two days pretty much we're the same the price
range was essentially very very close to the same so what we have here and what
this tells us and how we can use this in our trading is it the concept of
expansion contraction so similar to well Bollinger Bands strangles wedges things
that are contracting patterns this is another type of contracting low
volatility signal so we get a low volatility signal for two days well what
do we expect after low volatility there's actually a cycle between low
volatility that then turns into high volatility so we're looking for a
breakout of this range and what's cool if you looked at the high but those two
days you it would be here but if you look at the value area high it comes in
much lower and you could potentially get in earlier
into a trade then if you break out or if you trade the break out of the previous
day's high so that's one of the advantages is it can actually get you
earlier in a new trade and then it just draws these very clear lines very
horizontal lines that can create nice patterns for you so as you can see this
boom bada bing bada boom yep we go from low volatility to high volatility and of
course the benefit of that from a practical point of view is that high
volatility markets have the potential to make us big money fast that's fun to see
the P&L go green really really fast so that's why I like to trade these low
volatility to high volatility cycles so now other than looking for expansion
contraction patterns another one is for trends so here is a pattern for a
trending by the way I'm showing you for swing trading holding two three days you
can also use these levels on day trading if you'd like but I really prefer well I
use it on all my charts actually so it's really great oh I should mention here
too if you're wondering where to get these levels you really need to talk to
your software provider and see if they offer them so this is a trend now look
at how clearly this marks a trend it's just a different way of well mapping it
on your charts I guess is a good term but it's very clear so again it's as I
call this the stair step pattern so go up one there's the next step - where's
the next one and three and so you can kind of think of this almost as a five
wave powder and if you will we're gonna try to draw some lines here so that
would be one mm-hm and that would be two down here okay actually if you want to
draw it on this you could just draw it one two three four five drive and the
actual lines themselves and the bars are going to come in at a little different
places obviously because the horizontal lines only update once a day they just
stay the same place all day long although there are some variations of
this that do update intraday I haven't used that I just prefer to use
this traditional approach so you can just see my stair step pattern and it
takes out some of the noise that could have the way I shake you out and five
waves is about average that's about normal so if you get five waves you're
doing good you can't go more of course can go laughs but I find that five is
about average and a good place to take some money let's actually we can just
stay here in this slide see where it goes and yeah she goes down okay so
there you go same thing but now we go into a Down trends so I assure the
opposite of this and we've got basically the same pattern but now upside down
kind of like to show things both from a bullish embarrassed perspective so here
we go so there's your one and there's your two actually one two three four and
then goes down just a little bit four five now the market goes down way beyond
that but of course the reason is because this value area low is measuring from
this a day the previous day and if you notice too this is very significant so
pay attention to this one this retrace here in fact let me redraw this I don't
want to get too messy here I want to be as clear as possible so as we go down
okay make impulse move down and we barely retrace so that's a very good
bearish continuation pattern we don't like retrace this be too steep we don't
want a lot of buying coming to the market
another strong impulse move down and now we just go straight across again that's
good because it means there's not a lot of bullish buying coming in against our
downtrend trade another impulse move down now we get a different type of
retrace this one is not as favorable we don't like this one as much because it
comes up to the lower line which is the value area low but it also goes up to
the value high so you might be wondering does this thing have to stay below the
value area low during the entire trend preferably yes that makes trading so
much easier however remember that this zone between the value area high
and low is a neutral zone and so therefore it really hasn't gone
into bullish territory yet they would have to get above the value area high so
this retrace is still acceptable just makes it a little tougher if you want to
keep tight stops but from a technical point of view yeah it is still a bearish
trend and if you could psychologically stay and there through that then you're
golden because it does actually go down and make another low so again 1 2 3 4 5
and that's going to be really your optimal point to exit and take some
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