Friday, September 23, 2011

Market Profile Says: Expect More Trading Between 1150-1190

Today, I asked myself, "Will the market spend more time trading between 1100 and 1230, or is it about to break out?" A technical method that aids in answering this question is a "Market Profile" chart. (One day, this method will probably be as run-of-the-mill as others.) In such charts, the y-axis is price and the x-axis is the frequency of how many times the market traded at that price for a given time interval, just as a bar chart can be from 1-min to quarterly, over a given period.

According to market profile, when prices are range bound, they usually spend the most time, i.e. have the highest frequency, around the center of the range, forming a sideways bell curve. It is not until this bell curve is complete that prices begin to break out to a new trading range. These charts are also fractal in nature, with smaller bell curves making up a portion of a greater curve.

I constructed a market profile chart of the last couple of months based on the range of prices for 30 minute time intervals. (There are software vendors for market profile, but I created this study on excel.) During this time period, prices have swayed between 1100 and 1230 several times. As you can see in the chart below, two minor bell curves have formed that are part of larger distribution in which the center area, which should have the highest frequency, has yet to fill. The conclusion from this chart is, more trading should occur between 1150-1190, the unfilled center of the distribution.

Now, a conclusion from one technical study is far, far from definitive. The reason I post this is to offer a perspective not as easily encounterable elsewhere on this financial blogosphere, especially now when a break below 1100 seems imminent.


  1. Your ideas are always interesting George (as are Anon's).

    More comments appreciated.

  2. Thank you, Fiona-- and what a lovely name!