The Market Profile was developed by Peter Steidlmayer. He discovered a natural show of the market (the volume) and represented it in price/time relationship.
The Value Area is a primary component derived from the Market Profile® methodology and is intended to show the range of prices that reflect the most interest on the part of buyers and sellers.
The Value Area represents the range of prices that contain 70% of a day’s trading activity. This 70% represents one standard deviation and reflects the area where a majority of the trading occurred. It can be calculated based upon the TPO count (number of letters in the profile) or more accurately using the actual volume at each price. It is most commonly referenced to yesterday’s trading and used as reference points for the current day.
Point of Control (POC) – The price that recorded the most trading activity.
Scenario 1 When the market opens above the value area and is able to hold the value area high on subsequent tests, it is a strong bullish signal. If the market begins to trade within the value area and volume picks up it would be recommended to exit long positions.
Scenario 2 When a market opens above the value area but then begins to trade for two consecutive brackets back inside the value area, there is a strong tendency to rotate all the way through the value area and test the value area low.
Scenario 3 When a market opens below the value area but then begins to trade for two consectuive brackets back inside the value area there is a strong tendency to rotate all the way through the value area and test the value area high
Scenario 4 When the market opens below the value are and is able to hold the value area low on subsequent tests, it is a strong bearish signal. If the market begins to trade within the value area and volume picks up it would be recommended to exit short positions.
