Market Profile The evolution

After my last post on Market Profile in May, I received a lot of email on the different theories and concepts which all get aggregated in one common term called the “Market Profile”.


Truth be told, there are 3 variations of the Market Profile and at Vtrender we follow all the 3 variations completely and we could be one of the very few markets in the world where all 3 variations work simultaneously as well as asynchronously. I’ll explain…


But first, what are these 3 variations?


Pete Steildlmayer, the founder of Market Profile as a study, has evolved the Market Profile from :


a) The Traditional Market Profile: Which was about 30-minute price and time ranges and the base concept was time x price= value.


b) Steidlmayer Distribution: It consists of the IPM ( Initial Price Move ) which is followed by the start of a Balance followed by short covering or long liquidation Imbalance ( sometimes both in the same bracket) and then another IPM again.  We have written extensively on this –


c) SteidlMayer Volume Strips: Instead of using only 30-minute price ranges, Pete recommends using a set profile of 12 of 30 minute time period periods and a range of 9 to 30 minute time period to catch the imbalance moves better.


Why did Pete have to do this?



When Pete started off on Market Profile his basic premise was to search for “value” on a price vertical and time horizontal axis. It made waves because not many people had thought about plotting markets like that. The equation was simple then :


Price x Time = Value.


Let’s understand here that the concept of volume as we see it today, was not prevalent then.


Pete argued that the market was an auction process and under normal circumstances, you would fade movement away from value and under exceptional circumstances, you would buy new highs and sell new lows. The market’s job was to facilitate trade and be efficient and the best expression of that efficiency was the bell curve. Jim Dalton expounded on this in detail in his book “Mind over Markets” which till date remains the best explanation of the traditional market profile concept.


As Markets evolved and more volumes came in and changes started taking place in the timings at the US and European Exchanges, Pete felt that the institutional volumes and the 24-hour electronic markets created a lot more imbalances than earlier seen and the Steidlmayer distribution and the Volume Strips were a response to this. The change to screen-based trading from floor-based information in which locals were more powerful, now gave new powers to the institutions who with their algorithms fundamentally changed the control and hence imbalances became as important a part, as the balance or movement to value.


Next, as exchanges started giving out volume information fully, Value now could be easily seen through the volume traded at that price. Previously time defined price in the past tense but now volume was current information defining price at every step of the way. Time x Price was then Volume and since Volume became so freely available why would anyone use a surrogate for it? Per the Original Market Profile theory, if the function of the market was trade facilitation, then it would seek levels where opportunities for trade would be maximized ( volume POC). This maximization would also be reflected in the volumes and range of the day.


So what does all this mean for us now?


Fortunately, for us, not much has changed. Let’s remember again that Pete did these changes to the market he was trading which moved to a 24-hour environment. This made the concept of value, day types and Initial Balance not as useful to them as they used to be. But as dwelled upon in the last post, the key to understanding everything is context. And because we have a market which opens at 9.15 and closes at 3.30 we get to use all the 3 methods which Pete has handed over to us. We can still use them separately and I make an mention of day type in all my posts made in the evening and also we can view the profile as a composite and see if we are in an IPM or a balance. We use only composite profiles in all our posts.


At Vtrender, we build on what has been passed on to us. The Market Principles remain the same but the application of these principles needs to change over time. It’s about modifying the traditional theory to incorporate new insights and substituting with modern applications some old tools. Volume information has changed everything today and at Vtrender we were quick to see the Opportunity for insightful trading when the OrderFlow information came through. Quite simply OrderFlow meant to us looking inside the candle and see what the market was doing and instead of making educated guesses about lack of demand or no supply or even test of old supply or old demand we could see it live, working right in front of our eyes and the Volume opened the curtains to what the institutions were doing. Yes, we are incorporating the best of OrderFlow practices to see the auction market theory work live right in front of our eyes. So if the principles of Auction Market Theory tell us that xyz point is rejection we look for OrderFlow to confirm that rejection. It’s this marriage of Market Profile and the OrderFlow which is our defining edge in this fast-changing sphere of trading. They can build faster algos and move from cable to laser, but we see them and track them.


Our approach to the market is to build 2 hypothesis every day on the expected behavior of the market. This is what Market Profile tells us about what the market ought to do next ( I say “ought” not “will”) . Next, we interpret using the OrderFlow what the market is doing currently. The gap between the two is our trading opportunity. The closer the gap, the better is the trade.


I’ve often been asked why I pass on trading secrets and trading information to other traders. The truth is that there are no secrets out there. What we speak about in our trading room is common knowledge in every institution which works these markets. It’s a different matter that they don’t know that we know it too and that we see them and track them live and that’s our edge!


Trading is an extremely difficult profession but it’s difficult only for those people who do not understand how the system runs. Most people pay tuition to become a lawyer, doctor, engineer, accountant but ask how many traders read a book on Analyzing Markets or have made an effort to tuition themselves and the answers would tell you why this profession has a high fail rate. There is no literacy here.


I coined the subject of this post – Evolution. Pete Steidlmayer has evolved the Market Profile and adapted it completely to a changed trading environment.  I’ve seen sharp traders unable to evolve losing out their edge eventually. Evolution is the only truth for us as traders. A pond refusing to allow fresh water to flow in will attract pests and eventually stink. Winning traders constantly refresh and renew their knowledge and add to their expertise. Trading is a place where there is no place for resting on laurels. Keep evolving.

True Success is a journey, not a destination.


Of Edge Market Profile The Evolution



If you want to expand your understanding of the Market Profile then we have a place where we not just look at the various concepts of the Market Profile but also put them to practice in a Live moving market.


Pricing options are at –


Some more details at –


A quick link to join the Vtrender Trading Room is at –