Market Profile: Long-Term Analysis

Hello guys,

I would like to show you my way of analyzing the markets from long-term point of view. My swing trade levels are  always based on such analysis. Lets have a look at it step by step.

Requirements

For this analysis you will need cumulative (or yearly) Market Profile that will show you long term volume histogram. For that you can use Market Profile from TradingView (PRO subscription). You will also need to use daily profiles or short term cumulative profiles (also from TradingView) to place the levels more precisely. As for the timeframe – I use mainly daily candles with the cumulative (yearly) profile and 30 minute candles with the daily or short-term cumulative profiles.

*Note: Daily profiles with 30 minute candles are just for putting my swing levels more precisely. They are not that significant in the bigger picture. What matters most in this kind of analysis is a yearly profile and daily candles.

This is how your workspace could like. Left chart shows 30 minute candles with daily profiles. Right chart (the main chart) shows Daily candles with cumulative profile showing 1 year (click the picture to enlarge).

Cumulative Profile Shape

The first thing to do when analyzing the market form long-term point of view is to look at the shape of the long-term cumulative (in this case yearly) profile. If you are not familiar with the basic shapes the profile can have and how to trade those please read this article: Market Profile 2 – different profiles and their application. All the examples in this article are made on daily profiles but the logic stays the same for yearly profiles or any other profiles.

The reason for doing this step in the first place is seeing the big picture. When you know what the yearly profile looks like you immediately know what you are after. You know what strategy you want to use and what areas should be interesting for your trading and for making your swing levels.

Let’s have a look for example at a daily chart of CHF/JPY. The cumulative profile of current year is “D” shaped. For that reason I immediately know that I want to look for either short and long swing levels to trade. Those levels should be at the extremes of this “D” shape and the maximum potential for those trades should be the POC. I marked two potentially good swing trade levels in the chart below. One is a short from around 117.40, the other is a long from around 108.70.

 

Point Of Control (POC)

For me the POC is the most significant information the Market Profile gives. The reason is that it is the place where the most volumes in the given time interval were placed. In this case it is a place where most volumes throughout the year were placed. If you think about it it really is a very significant piece of information. For example if you have a “D” shaped profile the POC there is sort of a magnet or a place where the market was in a balance. With that knowledge you can expect that the market will have a tendency to return to this balanced area.

Significant Areas

The most significant areas from the price action point of view are: 1. Sideways price action area, 2. Aggressive initiation area, 3. Strong rejection area. You probably know those from my Market Profile Webinar. I use those areas to make a picture of what is going on in the given market and to create my own trading levels. Lets have a look into these in a little more detail.

  1. Sideways price action area – is significant because usually heavy volumes are placed in such areas – and heavy volumes mean big institutions. So those are places where institutions cumulate their volumes and build up their positions.
  2. Aggressive initiation area – is an area where price runs very quickly, aggressively and without pullbacks. It usually follows sideways price action area because big institutions finished building up their positions and after that they try to move the market. Direction of this aggressive initiation area shows who is more aggressive and more strong – whether the buyers or the sellers.
  3. Strong rejection area – gives the information of strong and aggressive buyers or sellers in a given area.

Creating Swing Trade Levels

At this step I already know how the institutional volumes were distributed throughout the year and I know where most of them were cumulated (POC). I also know where the most significant areas in the chart are – from the Price Action point of view. Only thing that is left is to create the trading levels using all this information.

At first I create my levels using the yearly profile and the price chart (with daily timeframe). Those levels are sometimes not so precise so I look into 30 minute chart and daily profiles to make them more accurate. Lets have a look at the CHF/JPY  example:

Thanks to my analysis I now know that I want a long level somewhere around 108.70. Reasons are:

  1. Yearly profile is D shaped.
  2. This level is at an extreme of D profile.
  3. There is a volume cluster visible on the yearly profile indicating institutional activity.
  4. There was a strong rejection of lower prices in this area.

If I zoom into m30 chart I see that roughly in this area there was a volume cumulation followed by aggressive buying initiation. This is good because I have pretty solid confirmation of my long level even on lower timeframe! In order to make my level more precise I shift it a little higher to be exactly at the point of control  (POC) of the rotation from which the initiation started (108.850). Now my long level makes sense from both higher and lower timeframe. Here is a picture:

That’s it

So guys this is how I analyze markets from long-term point of view. I suggest you try it on your own on as many charts as possible. Remember – practice makes perfect 🙂

Happy trading!

-Dale

PS. Here is a video that covers this whole process. Also one extra swing level is mentioned there.

P.P.S. If you want to become a member of my Pro Forex Course and get access to the Propitiatory Market Profile Course, Daily Levels Video, Swing Trading Levels, Auto Trading EA, Member Forum, and Personal Support you are very welcome to join here: Trader Dale’s Pro Forex Course

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