Steidlmayer on Markets: Trading with Market Profile 2nd

A chart is a communication vehicle. Its purpose is to communicate what is transpiring at point A (trading pit) to an observer at point B (some distant location). One can look at any charting system (e.g., bar, point and figure, candlestick) as a language. Each was developed to communicate market condition to an observer. The language of trading has its own vernacular. Examples include: “it feels heavy here,” or “it feels like we have more to go.” Market Profile is the product of a professional floor trader’s ability to communicate the pit trading experience symbolically in chart form. Here is how this is accomplished.

The standard 30-minute bar chart automatically moves to the right to start a new bar every 30 minutes. The horizontal dimension in this chart is automatic—dictated by chronological time, not market activity. The involuntary nature of this action inhibits the ability of the bar chart to communicate market activity in the horizontal. This limitation is analogous to trying to communicate detail or nuance using only nouns and verbs but no adjectives or adverbs—less than adequate communication.

Market Profile has no chronological restriction. It expands horizontally only when prices repeat. Horizontal expansion of the chart reflects only market activity, never chronological activity (the passage of time). Market Profile more clearly illustrates to the trader a new directional move beginning in a dead market or a directional move losing momentum. The feel of the market is objectively illustrated using the horizontal dimension.