The Many Benefits of Market Profile

Focus: TRADING

Linda Raschke Image Linda Raschke President, LBRGroup, Inc.

Too many traders get hung up on short-term indicators, says Linda Raschke, who tells how to use market profile to get an effective broad overview and avoid common missteps.

My guest today is Linda Raschke. Linda, talk about market profile. What are the most valuable concepts?

I think it’s an excellent tool to lend conceptual framework to the market. I really feel that too many newer traders get hung up on five-minute bar charts and oscillators.

These things are valuable because they’re going to give you overall bias if there’s an upswing or a downswing, and so forth, but if you study market profile theory, that’s really the true basis of auction theory, which goes to the heart of the price discovery process.

Every different methodology has its own semantics or terminology, but market profile takes away the time element and consolidates the actions.

See related: Get More with Less Indicators

You can see the levels that the price traded most about, so you have a central value area, and several key concepts can come out of that. If you push away from a value area, then you can come to a stronger trending environment.

With traditional technical analysis, you would want to see volume confirm that. So you’re either pushing out away from one of those value areas, or, if the price hits an area where there’s price rejection—no volume—it’s probably going to gravitate back towards that central value area.

It’s a different feeling aside from the time concepts of moving away outside of a value area or retracing back into it.

Also, something that’s useful for people to think about are price-rejection spikes.

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