John Keppler - Profit with the Market Profile

305 Pages·2012·6.02 MB·English

PROFIT WITH THE
MARKET PROFILE:
Identifying Market
Value in Real Time
BY DR. JOHN KEPPLER
Marketplace Books
Columbia, Maryland
Publisher: Chris Myers
VP/General Manager: John Boyer
Senior Editor: Courtney Jenkins
Art Director: Larry Strauss
Graphic Designer: Jennifer Marin
Layout Design Intern: Josh Boyer
Graphic Design Intern: Ciera Boyd
Copyright © 2011 by John Keppler
Published by Marketplace Books Inc.
All rights reserved.
ISBN: 1-59280-527-2
ISBN 13: 978-1-59280-527-3
Reproduction or translation of any part of this work beyond that
permitted by section 107 or 108 of the 1976 United States Copyright
Act without the permission of the copyright owner is unlawful.
Requests for permission or further information should be addressed
to the Permissions Department at Marketplace Books.
This publication is designed to provide accurate and authoritative
information in regard to the subject matter covered. It is sold with the
understanding that neither the author nor the publisher is engaged
in rendering legal, accounting, or other professional service. If
legal advice or other expert assistance is required, the services of a
competent professional person should be sought.
From a Declaration of Principles jointly adopted by a Committee of
the American Bar Association and a Committee of Publishers.
This book, along with other books, is available at discounts that
make it realistic to provide them as gifts to your customers, clients,
and staff. For more information on these long lasting, cost effective
premiums, please call us at 800-272-2855 or e-mail us at sales@
traderslibrary.com.
All Market Profile charts used in this book have
been produced using MarketDelta, one of the leading
Market Profile charting platforms. Some of the charting features
displayed in the book may not be available on other Profile
platforms. A special thanks is hereby extended to the MarketDelta
team for their support and pioneering work in the field.
The word Footprint when referencing a chart
is a registered trademark of MarketDelta LLC.
The phrase Market Profile is a registered
trademark of the Chicago Board of Trade.

PROFIT WITH THE
MARKET PROFILE:

Identifying Market Value In Real Time
Introduction to Market Profile vii
Chapter One: Market Profile Charts 1
Chapter Two: Value Area 29
Chapter Three: Financial Market Participants 45
Chapter Four: Auction Markets 57
Chapter Five: Analyzing the Open 77
Chapter Six: Market Profile Structures 97
Chapter Seven: Split and Merged Profiles 119
Chapter Eight: Volume and Value Tracking 143
Chapter Nine: Volume Tracking Indicator 171
Chapter Ten: Designing Profile-Based Strategies 191
Chapter Eleven: Profiles and Stocks 211
Chapter Twelve: Forex Meets the Profile 229
Challenges and Opportunities 247
About the Author 259
Glossary 261
Trading Resource Guide 277
INTRODUCTION TO
MARKET PROFILE
It is important for anyone interested in learning to become a
profitable investor or trader to be aware of the fact that learning
to trade is a life-long journey. A smart trader is continually learn-
ing. The markets are always changing and one must learn to adapt
and adjust to the changes as they occur.
It is both unreasonable and unrealistic for any individual to expect
that they will ever beat or conquer the market as many misleading
book titles often suggest. The goal of a successful trader is never to
beat or outsmart the market. The goal of a successful trader should
always be to trade in harmony with the market. Once a trader under-
stands the landscape of the market, they can participate in market
moves and profit from the activity that takes place in the market.
Trading requires many different types of skills and it takes time,
effort, patience, and discipline to acquire and master these skills.
vii
Many new traders start their trading journey with a strict focus on
price and price movement in the market. They quickly discover that
a focus on price alone does not lead to profitable trading and that a
price movement without volume to support it will quickly fizzle away.
After gaining some experience in analyzing the market, traders begin
to realize that even a study of price and volume together is not suffi-
cient to gain an understanding of the markets. Time is another major
element or dimension that must be added to the equation. Different
traders have different time constraints and different goals. Actually,
this is often the main characteristic that distinguishes between a
trader and an investor. A trader has a short-term horizon, while an
investor has a longer-term perspective on the market. Consequently,
all investors are traders in the market, but they have different time
considerations for their investments or trades in the market. A price
that may be too high for a daytrader may in fact be a bargain for a
longer-term trader or investor.
As any type of trader begins to incorporate the time differential
into their analysis, they are able to better understand the multi-
dimensions of the market and gain a much broader perspective of
the market. However, even with time, price and volume, they are still
missing a critical piece of the puzzle. They are missing the main fac-
tor that drives the market; the force that is behind all major trading
decisions. They are missing where value is in the market.
To profit in any market, a trader must buy low and sell at a higher
price or take a short position and cover or buy back at a lower
price. This cannot be accomplished without an understanding of
where value is in the market. Value is the core concept behind any
trade or exchange.
The trader’s perception of value is the major deciding factor for any
trade decision. When a large instructional buyer decides to buy
an item, it is because they have determined that its current market
value is lower than its future value. The opinions and perspectives
about future market prices will certainly vary significantly from one
viii Keppler
trader to another. However, they are always at the core of a trader’s
decisions. In the case of an intra-day trader, the future value may
simply be an anticipation of where price will be in the next five or ten
minutes. On the other hand, a swing trader may make their trading
decision based on where they anticipate prices will be in the follow-
ing week. Moreover, a position trader may be looking at future price
and value in a month or a year. The one common denominator is that
all traders make their trading decisions based on their perceptions of
value in the market.
In the past, traders have never had an analytical tool or a charting
technique that helped them to identify and track value in real time
for every time frame. Now, Market Profile charts make it possible for
traders to identify and track value in real time in every time frame.
This is the secret behind the power of the profile. The Market Profile
gives us the ability to use this powerful knowledge to identify trading
opportunities in the market and make better trading decisions. It
helps us to better plan our trades; to better time our entries and exits
to select more effective targets and stops.
Moreover, we are able to learn valuable information about the condi-
tion and the structure of the market. We can identify balanced and
imbalanced markets; we can identify fair prices, unfair highs, and
unfair lows for any given session. Furthermore, the profile allows us
to follow the dynamics of the market auction process. The profile is
an invaluable tool in the arsenal of any serious trader or investor.
History & Development
Market Profile charts and concepts are relatively new to the invest-
ment and trading world. The idea for the profile began in the early
1980s. In an attempt to create greater transparency for off floor
traders and attract new business to the exchange, the Chicago Board
of Trade (CBOT) started to make some market data and information
Introduction to Market Profile ix