Sat 26 Aug 2006
Of?all techniques used to analyze markets, the one that I find underappreciated is market profiling and auction market value theory.? This style was first codified?by CBOT as Market Profile.? But the basic principal is finding areas of price that generate more ticks of trading than others.? I’ve talked of this before as “density” areas.? The official Market Profile had many flaws such as being only available for CBOT products, using volume?instead of?ticks (more noise) and not looking beyond one day’s trading.? By using composite studies of multiple days or weeks, the trader’s eyes can be opened to where real value is found in a market, when new value is forming and when price is far from value.? I find most technical analysis to be indirect at best and voodoo at worst.? Profiling has the advantage of removing the blinders of technical analysis and reducing a market to fewer key areas of interest.? I personally feel that it comes the closest of all technical methods to true market understanding.? Whether or not it can produce successful trading is another matter because success in trading involves so many other things (risk management, discipline etc.) but I think it provides a level of clarity that will change the way you think about markets and perhaps make a solid foundation for the other facets of trading.