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The Horses are at the Gate and There They Go!

“The horses are at the gate and there they go!” The starter has commenced the race, emotions
are building, and if you have money on the race you may begin to sense a buildup of acid in
your throat along with a tightening of your muscles and a continual increase of pleasure or
disappointment; emotions are likely ruling the moment. When the race is over you may feel
drained for a short period of time; think about a continual two‐way event that takes place from
9:30 to 4:00 each day. Do you have the emotional stamina; it has been shown that emotional
stamina is also important for professional chess players. I want to discuss how the Market
Profile® serves to keep your viewing of the daily race more rational, which serves to require less
emotional capital. Employing the Profile enables your decision‐making to be less emotional and
more balanced.

Market Profile® is not an indicator in the technical sense nor does it provide buy and sell signals
but rather it is a decision support‐tool. It provides a composite view much different from other
charting tools available and as a result, gives a trader the opportunity to form a broader
perspective. The Profile organizes the market’s continual two‐way auction (race after race after
race) so that you can advance your trading and decision‐making abilities. The following are
some examples that set a broad framework of the Profile. Some of the important factors that
can be monitored via the Market Profile® are:

1. The opening relative to yesterday’s Profile; in or out of balance and to what degree.
2. Value area placement; a continuum ranging from clearly lower to clearly higher.
3. Who is in control of the market; what timeframe is dominating.
4. What is perceived as fair value; the equilibrium point where buyers and sellers are
about equal, referred to as the POC or as I like to consider it ‘the fairest price at which
business is being conducted’.
5. Attempted excursions away from this equilibrium.
6. The structure of the market; a visual sighting of the auction composite.
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Treasury Bonds Example:

1. Prominent POC and high volume area for the pit session on Dec 17, 2010. You should
note this and carry this information forward in your analysis for upcoming sessions.
2. Late afternoon spike up—prices move away from value to close near the high.
3. Next pit session Dec 20, 2010: Gap—price opens above spike—prices did not go high
enough, with the late day spike on Dec 17th, to find two‐sided trade.
4. Value clearly developing higher—mostly above top of spike reference.
5. Later in session price auctions away from morning session value forming spike down.
6. Repair: Late day spike revisits prior session value area and prominent POC. Note, the
late break stopped at the prominent POC from Dec 17th–had you carried this forward
you would have had a better idea of where the spike on Dec 20th might end.
7. Price closes lower however:
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8. The POC did not migrate down with this later session price break; likely is long
liquidation—“old business”—caused by the day timeframe inventory becoming too
long. We note this prominent POC on Dec 20th and carry this information forward in our
analysis for the upcoming sessions.

Historically, when we viewed a trading floor we saw traders wearing colored jackets, frantically
gesturing and waving in an attempt to be both seen and heard. It all appeared to be very
confusing and bizarre. Sometimes, as traders, we feel the same way, particularly the higher our
emotions are running. The Market Profile®, when you let it, will calm your emotions by
providing a more in‐depth understanding of the trading day; you will begin to see that the
markets aren’t as chaotic, confusing, and bizarre as they may appear to your competitors—to
those that may not be able to view the markets as rationally.

So much learning and growth is required in a trader’s evolution; so many parts of a person are
called upon to be successful. Yet the technical vantage point often takes precedence over the
more subtle but vital aspects to trading. Conventional emphasis is but a fraction of what is
required to develop a long‐term successful career. Just as we have limited financial capital,
equally important we have limited emotional capital; consider this thought as you reflect on
your own trading experience. I have listened to traders recall their trading day, their decisions,
their thought process and sometimes their number of trades. I wonder if they expect stern
counsel for my reply but at times my prevailing thought and response is, “You must be
exhausted.”

Increase your odds of success as we near the New Year by working on employing a broader
approach by utilizing the Market Profile® and begin to separate yourself from the attraction of
price; remembering that price is only an advertising mechanism and can easily lead you to get
caught up in the herd.