Why is 'market profile' only used for futures?

[Jonathan Weissberg]

The commentators in this thread espousing on "what Market Profile is" have quite obviously not been trained in the art.

I say that as a protege of Peter Steidelmeyer.

My understanding is it tries to emphasize one other dimension of markets that is less looked at: time. On a standard chart we do see volume, price, time, but it's much harder to identify visually what is the average amount of time spent in given areas vs. a market profile chart.

Although that knowledge still doesn't really help me work out why it's not really touched by any successful stock traders.

 

[Jonathan Weissberg]

What you are referring to is Volume Profile and the segmentation of it through time. It is the offspring of the original market profiling technique developed by Peter Steidlmayer.

Market profiling developed by Pete Steidlmayer initially started with him simply marking the vertical range of price separated in 30 minute segments, creating the horizontal histogram formatting that is now synonymous with MP and VP visual. That's all, no volume. As he refined his method he added volume (but in the pit in the beginning it was not possible) and as we all know, his method of viewing market data was eventually packaged and marketed with volume data from the CBOT's LDB.

Over time he eventually left the 30 minute segmentation restrictiveness and desired to view the market more as the dynamic entity it is retaining the TPO (Time Price Opportunity) concept but dropping the time segmentation, leading to his latter work exhibited in the image below.

View attachment 239867

Till this day I have never found any software that can build profiles not based on a fixed time or volume segmentation.

I assume by 'fixed time' you mean intervals for the profile set by the market open/closes?


And what's 'volume segmentation'? And 'time segmentation'?

 

[Scataphagos]

I can think of a few values gained from being aware of volume:
(1) approximate knowledge of how much size you can put on & take off given your particular time-frame.

Agree on this.

Disagree about the rest.

 

[They]

I assume by 'fixed time' you mean intervals for the profile set by the market open/closes?

And what's 'volume segmentation'? And 'time segmentation'?

'Fixed time' could be any time segmentation. It could be the entire day's information (which is the traditional method) It could be 5 day's cumulative data or it could be that you build a separate profile for each hour or even each bar -

https://www.elitetrader.com/et/threads/what-is-inside-your-5-minute-candle.328126/

The images below are of 24 hour profiles and 100,000 'volume segmentation' profiles - a new profile is built after 100k contracts are traded.

 

[bone]

The concept of time at price is probably more important than volume at price TBH.

The more time spent at price, the more acceptance of that price valuation. The less time spent at a price, then obviously the market perceives that price to either be under or over valued.

MP is essentially a vertical histogram - that in itself isn't especially novel, but I would submit that the concept of market "control areas" is unique and curious.

To understand MP, you need to do a very deep dive into "control areas".

 

[bone]

In the OG Market Profile, the "volume" was actually for price prints - not traded contract volume. There were CBoT employees in each open outcry Pit that recorded time and sales as best as they could.

The concepts of a market accepting or rejecting a valuation and the behaviors of price discovery such as "control areas" are as relevant today as they were 40 years ago.

 

[Jonathan Weissberg]

'Fixed time' could be any time segmentation. It could be the entire day's information (which is the traditional method) It could be 5 day's cumulative data or it could be that you build a separate profile for each hour or even each bar -

https://www.elitetrader.com/et/threads/what-is-inside-your-5-minute-candle.328126/

The images below are of 24 hour profiles and 100,000 'volume segmentation' profiles - a new profile is built after 100k contracts are traded.

View attachment 241079

View attachment 241080

What would be your reasoning behind segmenting by volume? And on what reasoned basis would you pick one quantity of volume over another?

 

[Jonathan Weissberg]

The concept of time at price is probably more important than volume at price TBH.

The more time spent at price, the more acceptance of that price valuation. The less time spent at a price, then obviously the market perceives that price to either be under or over valued.

MP is essentially a vertical histogram - that in itself isn't especially novel, but I would submit that the concept of market "control areas" is unique and curious.

To understand MP, you need to do a very deep dive into "control areas".

Just thinking about this fairly superficially and quickly, that makes sense to me. You'd expect a market with lots of active participants to respond quickly—a measure of time—to a perceived mispricing. That seems to be the essential aspect rather than volume since a large quantity of volume could occur for many other reasons in addition other than responding to a perceived mis-pricing, e.g., a market open/close forcing orders, hedging, rolls (can you think of any others?)

Thoughts bone?

 

[Jonathan Weissberg]

In the OG Market Profile, the "volume" was actually for price prints - not traded contract volume. There were CBoT employees in each open outcry Pit that recorded time and sales as best as they could.

The concepts of a market accepting or rejecting a valuation and the behaviors of price discovery such as "control areas" are as relevant today as they were 40 years ago.

I've been doing some reading lately on the concepts behind this charting method (profile) and the only meaning of 'price control' I seemed to find essentially equated to a defined price range.

Or is it something else?

 

[They]

What would be your reasoning behind segmenting by volume? And on what reasoned basis would you pick one quantity of volume over another?

You can test specific quantities of volume and measure the range variances/volatility they create.

Different quantities of volume are for different levels of granularity.