A day traders biggest concern with becoming a Market Profile Trader should be to not trade Market Profile blindly only because it is easy to see the price action patterns as they set up. Just like any profession, you'll need to learn all of the Market Profile terms and caveats of Market Profile Trading before trading real money. Until then, don't be embarrassed to trade in a demo trading account which are available through NinjaTrader and Trade Station. Day Trading in simulation mode in a demo account will help hone your trading skills and prepare you for the real world of day trading. Then, trading the emini es, s&p 500 and using Market Profile will put you in the same league as the institutional traders.
As a Market Profile Trader, you will have a Trading Plan BEFORE the trading day and a Concrete Plan AFTER the first hour of the markets trading as the market profile footprint develops.
Emini Day Traders using the Market Profile Theory should be aware of the 4 W's which are the building blocks of your trading plan.
1. WHAT is the market doing, and, is it doing a good job in its attempts to go in the direction it is trying to move as it tries to establish a direction for the trading period.
2. WHEN is the market going and go to what projected Market Profile level.
3. WHERE do you see it going. By understanding basic Market Profile terms and nuances, the day trader will then understand that direction.
4. WHY the emini es, s&p 500 or any other futures markets, forex and stocks are doing what they are doing, because with Market Profile trading, the data is not random anymore. With Market Profile we know
WHY the market is going to the tick within our Market Profile Levels.
We will now introduce you to a few Market Profile terms, which will get you started in the correct direction of Market Profile Trading.
Market Profile Terms
Balanced Market: Looks like a bracketed market and occurs 75% of the time. Assumes prices are in an accepted range with the emini trader knowing the highest price and lowest price the institutions and commercials will pay for the emini es or other day trading vehicles.
Balance Point or Point of Control: This is usually displayed by a line that equates to the center of a range and where the most activity and volume has occurred during that range. The majority of the time, price, and volume was spent at this price, indicating the best value and true value-especially going into economic news reports.
Bell Curve: This term also can be used synonymously for the value area. There are more than one bell curves and value areas to any trading market which is unknown to most Profile traders, but not to the institutions or commercial traders, or the Ninja Trader and Trade Station Bell Curve Indicator.
Commercial Capping: 1x's, 2x's and 3x's, the IB (Initial Balance), and used exclusively by Institutions and
Commercial traders as Support or Resistance and Profit targets that work to the tick. Do not trade these levels blindly. Make sure you understand the logic to know when to use these levels as support or resistance.
High Volume Nodes:(HVN)Levels/Price to where the highest volume has occurred at one specific price. High volume nodes will be a future magnet for price. Use trading software which plots these levels for you automatically so you don't need to go back 6 months to see a node.
Initial Balance:(IB) The first hour or first two trading periods of the trading day for any market. You will have locals or floor traders acting as middle men during this period.
Imbalanced Market: A market that is trending and eventually with new value/prices being accepted or the market prices will be rejected and it will return to balance.
Low Volume Nodes:(LVN) Levels/price where the lowest volume has occurred at one specific price. Learn how to trade high and low volume nodes and use emini software that plots these levels for you automatically for you may need to go back 6 months to see a node.
Naked Point Of Control or Naked Balance Points:(NPOC) A balance point where price has not traded since it was created, so it will not be diluted, and will act as a magnet for support or resistance, and to the tick, when market profile is in effect.
Range Extension:(RE) The first hour determines the RE levels and is determined by price not value. Value is more reliable than price, so the trader must realize there are many false RE indications throughout many trading days. There must be conviction with RE, or the trader will experience many head fakes during trading session. This is the area most marketprofile traders fail in for they have the knowledge to understand RE but not the logic to trade it. It is suggested to use the Conviction Indicator in NinjaTrader or Trade Station to accurately trade RE.
Single Prints:(SP) Single letters within a profile. Be aware of how many letters and when they occur, for the institutions are aware of this information along with some market profile trading emini trading schools.
Value Area: A calculation where 70% of the trading business is conducted and thus constitutes the Bell Curve. Be aware that the institutions and commercial institutions (and some emini trading schools) use naked value areas that are left over from prior days, for they do have value in the present trading day.
By having a better understanding of the Auction Market Theory the emini daytrader will expedite the learning curve that exists with all professions. Be sure to spend some screen time in a emini trading school which teaches Market Profile trading with helpful emini trading software and in a live trading room.
Article Source: http://EzineArticles.com
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