Market Profile Trade Secrets

Secret #1 - TPO Volume Composite Profile Charts

Donald Jones was among the early practitioners of Market Profile.  While trading with Market Profile, he discovered a shortcoming with the theory.  He went about trying to solve the problem in which the markets are not day-to-day serially correlated.  Don Jones came up with a solution and added to the knowledge base of Market Profile trading.  His insight provided the solution for the missing link.

Don Jones developed the Overlay Demand Curve (ODC) to solve the issue that today's results are poor predictors of tomorrow's action.  ODC integrates data into a "super profile".  The Overlay Demand Curve is a graphic of longer-term market distribution.

This provides a powerful swing trading tool for market profile traders .  You can see how the market has developed over a period of several days. 

I also keep track of longer term composite trading action.  I decided why not share a few of my selected TPO Volume Composite Profile charts for free.  The links to these TPO and Volume profile charts are located on the navigation menu.  I like to see the TPO information alongside Volume information.  That way, I can see not only the price and volume relationship but also the time of the action when these trading activities occurred.

On my TPO Volume Composite charts, the TPO section on the left will tell me if traders have little opportunity to get onboard with a move.  If they were sleeping during the night or went on a bathroom break, they would have missed the move on single print TPO.  Or the TPO will tell me that certain prices were experiencing back and fill where everyone were given an opportunity to trade at certain price levels.

Secret #2 - Sector and Currency Rotation

Not many people are aware that J. Peter Steidlmayer had developed additional trading methodologies. After he completed his work with Market Profile, Steidlmayer had gone on to research the theory that there is always a core amount of money that stays in the stock market.

In contrast to the inflow of money when the stock market is hot or the outflow of money after a panic, there is a core amount of money that remains in the stock market. The core money just rotates from stocks to stocks. Unlike the hot money, it doesn't leave the stock market. If you are able to follow the core money flow, you should sell the stocks that the core money is leaving from and buy the stocks that the core money is rotating into.

Trading Insight:

Drawing upon works pioneered by Donald Jones and J. Peter Steidlmayer, I combined and created a modified version of their work so it can be branch out to the FX market. By observing TPO Volume Composite charts over time, you can identify Currency Rotations.

The US Dollar rotates from currency to currency. To spot which currency is the US Dollar is moving into, you can organize the information on a TPO Volume Composite chart. There is two parts to this equation. First, you want to identify which foreign currency the US Dollar is moving out of. Second, trace which foreign currency is receiving the inflow. Identifying just the foreign currency which is experiencing the inflow is not enough. You must also identify the foreign currency that is experiencing the outflow during the same time period.

Line up the charts to get a sense of the before and after picture. This is what you want to see on the TPO Volume Composite chart:

  1. The VWAP will be moving higher on the volume chart. This reflects the increase of pricing on the foreign currency as more dollars is flowing in to purchase the foreign currency.
  2. The POC Volume will be more compared to the previous time period. You want to see an increase in trading activity at the higher price to indicate inflow acceptance.

This is a new technique to track and identify Sector and Currency Rotation.


HTML Comment Box is loading comments...



online stocks, futures, and currency trading strategies

Stay In Touch

Follow Clever_TS on Twitter

If you like this page and you are feeling generous, please give credit for the source with a link back to this page.  Help others find the valuable resource available here.

[an error occurred while processing this directive]