2016 7th International Conference on Cloud Computing and Big Data
Applying Market Profile Theory to Analyze Financial
Big Data and Discover Financial Market Trading
Behavior - A Case Study of Taiwan Futures Market
Wei-Yuan Huang An-Pin Chen Yu-Hsiang Hsu
National Chiao Tung National Chiao Tung National Chiao Tung
University University University
Institute of Information Institute of Information Institute of Information
Management Management Management
HsinChu 30010, HsinChu 30010, HsinChu 30010,
Taiwan, R.O.C Taiwan, R.O.C Taiwan, R.O.C
TwOwen412@gmail.com Apc888888@gmail.com Xzya82@gmail.com
Abstract—With financial market constantly changing, prices
are often affected by many factors that we cannot predict its
direction easily especially in the market correction. If investors
want to make profits, they must find a relatively low-risk entry
points. This study is based on Market Profile Theory to use the
displacement of point of control (POC) in different trading days
to find out the best extremely short-term entry and exit points in
financial big data in order to have experiment and analysis. We
expect to find knowledge and behavior of the potential market
that can help traders to make profits in extremely short-term
trading. And at the end of this study, we can refute that Taiwan
Index Futures Market conform to the weak form of efficient
market hypothesis. This study found that the POC of historical
trading day can be the reference and recommendation of entry
point. The greatest performance of making profit is using 5-days
historical POC to join the experiment. And it shows POC has the
characteristic that the most traders accept its price.
Keywords—Market Profile Theory; Big Data in Finance;
Efficient Market Hypothesis
I. INTRODUCTION
Rapidly changing in the financial markets, prices are often
affected by many factors such as international news, policies,
fundamentals analysis, greed and fear. It’s not easy to predict
its direction, and the market is always in the consolidation
phase. The answer that investors want to know the most is how
to find trends of the market in consolidation phase, how to
short them, how to seize the opportunity, and how to applicate
the trading strategies to profit. However, it is hard to
understand ever-changing market prices. Many scholars
believe that the market is unable to control, and the market
price changes randomly. So it’s really hard to predict future
prices.
However, the above-mentioned assumptions have blind
spots when many people gather together. Each person between
themselves affects each other. That means human behavior is
978-1-5090-3555-7/16 $31.00
$25.00 © 2016 IEEE 166
DOI 10.1109/CCBD.2016.32
Hua-Yang Chang Ming-Wu Tsai
National Chiao Tung National Chiao Tung
University University
Institute of Information Institute of Information
Management Management
HsinChu 30010, HsinChu 30010,
Taiwan, R.O.C Taiwan, R.O.C
Tonychang072315 Boooo1231@gmail.com
@gmail.com
no longer an independent event, which is called The Effect of
Sheep Flock. Thus, price movements are not random. Investors
will follow viewpoint of others to make their own decision.
Random Walk Theory was first proposed by Regnault in
1863[1]. And later Kendall used experimental model to predict
directions in 1953[2]. He discovered that the price couldn’t be
predicted. So he claimed that market prices was random.
In 1965, Fama[3][4] formally proposed the Efficiency
Market Hypothesis. He thought that the price of securities
could immediately and adequately react to the market. Also,
the current stock price always affects by the past, and even now
and also future predictable information. Therefore, investors
can’t use any trading strategy to obtain excess returns because
everyone analyzes stocks independently and unaffectedly. Also
the stock price can quickly respond to all the information, so
investors can’t use any investment strategy to predict the share
price. However, not all the markets satisfy the above situations.
Some markets exists information gaps, so they can’t be
efficiency markets. Thus, Fama[5] strengthen his argument
again in 1970: he believes that all the market participants are
rational in order to pursuit of maximum profit. Moreover, in an
efficient market, prices reflect all information. Any
fundamental analysis or technical analysis can’t get excess
returns from the market. Since different research methods,
study periods, and research subjects will lead to the different
conclusion, different markets have different proponents.
Steidlmayer, the author of Market Profile[6], mentioned
that the market price was definitely not random development. It
was logical. Market price was changed by different needs of
participants, such as long-term and short-term traders, to enter
or leave market. And he thought that market value (Value) =
Price (Price) + time (Time). This means that participants with
the changes in the market price and time result in different
value. Therefore, if investors want to make some profit, it must
be looking for a relatively low-risk entry points, especially in
the consolidation phase. If investors use one of characteristic of periods and references to history POC data which can be the
POC, most trades accept its price, that means the market price entry points or not.And the exit points will referred as the price
will look back to the POC and make profit when the traders back to the POC and the displacement of each time level.
enter market after the price deviates from the POC. There are Therefore, find out the convergence of knowledge behavior
few researches related to exteremely short-term profit, so this and except to know that in this situation Taiwan future market
paper will explore displacement of POC that changes in doesn’t meet the efficiency.
different historical trading day and finds the best entry and exit
points. Then using historical information assets investors to
find the market direction in the future. At last, it proofs that the
market is not suitable to the weak form Efficient Market
Hypothesis.
II. RELATED WORK
The price always constantly changes to attract buyers and
sellers to have the transaction[7]. Market Profile is an new
theory of observing and analyzing the market price changing
by J.Peter Steidlmayer in 1984[6]. The role of the free market
is using competitive auction to fluctuate the price to attract
buyers and sellers into tradeing.
Market Profile Theory can divide into three parts: market
structure, time and trading logic. Market Structure also called
Market Profile Graph. It uses unique bell-shaped graph to
represent the whole market structure and the historical change
of price to react behavior of participants. Time uses curve of
bell-shaped graph to understand every behavior of each
participant. The widest part of the curve in the graph
represents participants spending most time between that period
of time. This also means that with finding out the range of
Fig. 1. Example of Market Profile Chart
value is accepted by participants the most, we can understand
every behavior of each participant. Trading Logic uses
III. PROPOSED METHOD
experience of observing Market Structures and Time to
investigate the reasons, motivations and methods of market The data which uses each transaction from Taiwan Futures
operation. Exchange includes trading date, trading time and strike price in
our study. The sample size is from 3rd January, 2011 to 31th
The basic structure of Market Profile Theory is Time Price December, 2014 that includes 990 trading day. Because this
Opportunities (TPO). The typical Market Profile Chart splits study is focus on the correction in trading day, we don’t choose
the trading day into thirty minutes for one unit. Each letter the day which daily pricing limit in the first opening hour
assigns to each time period. It means that if there is a transction exceedes to 1%. There are 427 trading day don’t fit this
deal in one time period, we can mark the unique letter in the situation, so that the sample size of this paper are 563 trading
price on the Market Profile Graph. Next, we need to collect all day.
the TPO data of each period. That can become a normal
distribution analogy (Fig. 1). In Figure 1 Value Area is the This paper wants to trace out the change of POC in the first
range of price levels which show the strong willing for buyers opening hour, and investigate every POC direction of
and sellers to join the market .The price levels are also displacement and the difference between the history POC. At
represents the price acceptable by buyer and seller .In the that time, POC is the most reasonable price. We assume that
concept of Market Profile theory, Value Area holds 70% of the market price will turn back to POC, the condition of exiting
total transaction during the trading day. market will be new POC or the direction of displacement by
POC until to 13:25. The goal that we want to achieve is to find
In normal distribution analogy (Fig. 1), Point of Control out the best entry points, exit points and the maximum profit.
(POC) is closest to the center of Value Area which represents Also we want to test Taiwan Stock Price Index Futures is not
the high volume in the market. It is also represents the most consistent with weak market form Efficient-market hypothesis.
frequent trading price levels. Therefore, POC is the reasonable
price of trading day. When the POC begins to move, it’s a sign A. Experimental group
that new reasonable prices are being accepted. In terms of In this paper, the experimental group divide experiment
POC, we can use quantify analysis to realize the degree of into one minute market profile chart and thirty-minutes market
strength by buyer and seller in the market. In order to estimate profile chart. We assume that the POC is the most acceptable
the future trend in the market. price by most people and that price can provide lots of value.
When the POC begins to move down, the situation means the
In this paper, we apply the Market Profile Theory to trace price come to the new price that is accepted by most people.
out whether the market price departs from the POC for several

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We assume that the price move down from POC for a while
and the short-term traders know that there are some profits. The
price will return back to POC. Our experimental group refers to
the history trading day of POC as the entry points.
When the POC and the price move down and the price
touch previous five days, ten days and fifteen days, we make
long position. The exit points is that the price go back to the
POC or the POC move again. On the contrary, make a short
position when the POC and the price move up and the price
touch previous five days, ten days and fifteen days. The exit
points is that the price go back to the POC or the POC move
again.
prices by analyzing historical information. So in this
experiment, control group uses random trading model. Because
the control group compares to the experimental group,
experimental group meets the historical trading days POC to
decide long or short, and control group trades with long or
short randomly. Exiting condition is both turning back to
previous POC or moving back again. If traders enter market by
long, they will exit by short. If traders enter market by short,
they will exit by long..
C. Performance evaluation
In this research, performance evaluation divides into two
methods: accuracy ratio and average gain. After the end of
experiments we mentioned before, we calaulate the total
transactions. If the transaction makes profit, we set value to 1,
and vice versa. We sum all the value of winning transactions,
and divides to all total transactions. That is the accuracy ratio.
The equation calculates as following.

σ೙
೔సభ ஼௢௥௥௘௖௧೔
Accu”ƒ › ൌ ே
(1)

‫ݐܿ݁ݎݎ݋ܥ‬௜ : The i th transaction results which make profit

N: Total transactions

This paper is simulates by historical data of TXFC5, and

income is calculated by gaining value. Every transaction
limites to trade one position, and measures the profit per
position. The equation calculates as followsing:
௡
σ
௜ୀଵ௉௥௢௙௜௧೔ 
˜‡”ƒ‰‡‰ƒ‹ ൌ (2)
୒

ܲ‫ݐ݂݅݋ݎ‬௜ : The profit which is made by the i th transaction results

N: Total transactions

IV. EXPERIMENTAL RESULTS

Fig.. 2. Example of test group (Thirty-minutes Market Profile Chart)

The research shows that POC most of time hangs around
the same value. It also means that we find the best enter point
to simulate when experiment consolidates. And we know that
For example, we can see that the closing price in the the simulation of experimental transactions are more than 400
previous day, 12nd January, is 8983 and the POC is now in the times. The experimental group filters data through moving
price 8990 (Fig. 2). The next trading day,13rd January, that the directions and historical trading day of POC. It means that
opening price in the first hour from the highest price area is trade will occur when the POC meets in the same direction and
9000 and the lowest price area is 8993. The change limit which price with historical POC. And it exists market when the price
is smaller than 1% will be our sample size. When the POC turns back to previous POC or POC of moving in the different
move from C (8996) to F (8994), the price changes from high direction. The following are the results of experimental group
to low. It shows that when the POC and the price move down and control group:
and the price touch the history POC (ex. 8990), traders can take
a long position. The exit points is the price turn back to the TABLE 1 THE RESULTS OF EXPERIMENTAL GROUP
previous POC (8996). When the POC move from I (8986) to J
(8988), the price changes from low to high. It shows that when historical Refered Accuracy Income Transactio
the POC and the price move up and the price touch the history POC days Ratio (%) per lot n Times
POC (8990), traders can take a short position. The exit points is Last 5 days 80.78% 2.64 411
30
also the price turn back to the previous POC. minutes
Last 10 days 81.14% 2.30 525
Last 15 days 81.01% 2.37 616
B. Control group Last 5 days 75.68% 1.54 444
1 minute Last 10 days 75.84% 1.04 592
In according to Weak Form of Efficient Market Hypothesis, Last 15 days 76.19% 1.04 693
we assume that stock price can fully reflect all historical and
existing information. So investors can’t forecast future market

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 TABLE 2 THE RESULTS OF CONTROL GROUP general, both accuracy ratio and ability of making profit of
control group are not good enough.
historical Refered Accuracy Income Transactio
POC days Ratio (%) per lot n Times In terms of accuracy ratio, experimental group is better than
30
Last 5 days 49.88% -0.02 411 control group. And it also works in income per lot. It shows
minutes
Last 10 days 49.90% -0.57 525 that using market profile of POC is more efficient than control
Last 15 days 53.41% 0.41 616 group. This result proves that TXFC5 doesn’t meet the Weak
Last 5 days 53.15% 0.24 444
1 minute Last 10 days 53.20% -0.11 592
Form of Efficient Market Hypothesis. Experimental group has
Last 15 days 55.56% 0.17 693 the best profitability when taking last 5 days historical POC as
a reference.
V. CONCULSION
In this paper, we research the characteristics of the control
point using Market Profile for investigating. Also, we have the
hypothesis and verification experiment in exteremely short-
term trading, and change trading relationship between POC
moving direction and historical trading days. Then using
statistical analysis expects to find out the potential knowledge
behavior. At last, view TXFC5 whether meet the Weak Form
of Efficient Market Hypothesis.
In this research, taking POC movement as a reference in 30
minutes market profile graph is better than 1 minute market
profile graph to enter market. It shows that the lower POC
Fig. 3. The income per lot of experimental group and control group moving times casus the better profit. Because one-minutes
graph is faster than thirty-minutes graph, one-minutes graph
gets lower profit. In addition, this research reveals that
historical trading day can be used to determine enter point.
Taking last 5 days as a reference gets the better profit. When
the referred days increasing, price gives no informative, and
point of taking profit decreases.
Experimental group and control group trade are in same
condition. Control group enter market to long or short
randomly and close out at the end of experiment. In according
to experiment, accuracy ratio and income per lot in
experimental group are obviously better than control group.
And it proves TXFC5 doesn’t meet the Weak Form of Efficient
Market Hypothesis.

Fig. 4. The Accuracy of experimental group and control group ACKNOWLEDGMENT

As the results, the thirty-minutes market profile graph of The work was supported by the Ministry of Science and
experimental group is more accurency than one-minutes Technology, Taiwan, R.O.C. under Grant MOST 104-2410-H-
market profile graph to be enter point into the market. It 009-017-MY2.
represents that times of POC movement reduce. The total
profits rise because one-minutes market profile graph moves REFERENCES
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