The Evolution of the Market Profile

BarroMetrics Views: The Evolution of the Market Profile

The ideas underpinning the Market Profile as well as the actual charting technique helped bring about my trading success.

Many are unaware that the Profile has undergone at least 3 stages:

  • Stage 1: Traditional Market Profile – fixed periods of 30-minutes that begin and end with the day’s ‘pit’ session.
  • Stage 2: The Steidlmayer Distribution (now also called Market Profile)
  • Stage 3: Cap Flow software

I stopped ‘following’ the Profile at the Cap Flow stage. Knowing Pete, I am sure there have been have been enhancements to Profile theory of which I am unaware.

In this blog, I’ll briefly talk about Stage 2.

Stage 2 was a major breakthrough  (at least so far as I am concerned).

Prior to Stage 2, Profile traders relied on Long Term Activity Charts (see Mind Over Markets) for the the longer term perspective. I found LTA lacking in flexibility and difficult to assess. The Steidlmayer Distribution (SD) is a much easier tool to understand and apply.

The key to the SD is to be aware that it begins and ends because of its own structure – not because of any fixed period. A structure begins with what I call an Initial Price Movement (IPM). This is a directional move that usually begins at the Point of Control of the previous structure and usually comprises of single prints. A structure ends when either a new IPM begins or the structure turns from a Bullish (or Bearish) structure to a neutral one (i.e. a normal bell curve).

Figure 1 shows the current combined E-mini that I started from Feb 1, ‘L’ period -that’s when I believe a new IPM began. The directional move during yesterday’s ‘L’ period. After that development (rotation) began. As long as we don’t see acceptance below 1091 (50% of IPM), a BULL profile will form. Once the development completes, I assume that we will IPM up.

Should we accept below 1091, then:

  1. We can expect the ES to go to the 3rd stdev of the former bull pattern: 1082 to 1081.
  2. If we do see the ES reach 1082 to 1081 then either:
  • a sideways congestion will form between 1101 to 1081 or
  • a new directional move will form.

To understand the logic of the moves, you need to know that one of the learnings from Market Profile is markets generally go from Bull to Sideways to Bear and vice-versa. You seldom see a Bull to Bear change in trend. This is an important observation that many traders fail to appreciate.

(Figure 2 shows the Bull, Bear and Sideways SD Patterns)

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FIGURE 1 Combine Market Profile

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FIGURE 2 Profile

2 thoughts on “The Evolution of the Market Profile”

  1. In fact, I did not know anything about a sideways trend.

    Now I understand why people suffer big losses even when they are just following proven trends. In a sideways market, there is little or no change in stocks, isn’t it?? Correct me if I am wrong.

  2. Hi Ann Julie

    I don’t understand the sentence: “In a sideways market, there is little or no change in stocks, isn’t it??”

    As you say, the error most newbies make is to treat all corrective structures as simple or simply ignore corrective structures. In these structures, buying new highs and selling new lows will make money.

    But in a sideways structure, buying new highs and selling new lows leads to have large open losses as the market moves to the other boundary.

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