TECHNICAL ANALYSIS MASTERCLASS

Intermediate level - (Module 6) Introduction to Ichimoku & Market Profile

Fixed Income, Global Markets Europe

Tom Pelc Co-Head of Macro Technical Strategy

STRICTLY PRIVATE AND CONFIDENTIAL

23rd November 2011 © Nomura
 Module 1
Introduction
to Technical
Course Contents Analysis –
support/resi
stance,
trend-lines,
gaps,
Fibonacci
techniques,
projections,
extensions,
time zones,
Fibonacci
arcs, how to
use a Lucas
Table

Module 2
Western
chart
patterns,
introduction
to Dow
theory,
FINANCIAL
MARKETS
gaps,
A brief look back at history
400 mln yrs - (Paleozoic era) – the sponge, starfish and chambered nautilus.

50,000 BC - Early stone age begins (fire possibly discovered)

15,000 BC - Works of art appear

4,700 BC - Possibly beginning of the Babylonian calendar

4,241 BC - Egyptian calendar was introduced.

4,000 BC - Pyramid of Giza, interesting mathematical/astronomical traits

3,113 BC - Age of Pisces 13th Aug 3113 BC to end 21 st Dec 2012

1,832 BC - Rhind papyrus (geometry of Triangles), but no concept of zero

1,500 BC - Oldest Egyptian sundial.

325-265 BC - Euclid “13 Books of the elements”

300 AD - Concept of Zero from Indian and Mayan cultures

552 AD - Buddhism introduced in Japan

FINANCIA
L
 A brief look back at history
1202 - ‘Liber Abaci’ is published by Leonardo Pisano (Fibonacci)

1228 - ‘Liber Abaci’ is edited and 4 other books written by Pisano

1345 - Peak of worlds biggest financial crash (Bardi & Peruzzi)

1440 - Invention of movable type – led to textbooks becoming available

1509 - Luca Pacioli ‘the divine proportion’ illustrations by Leonardo Da Vinci

1611 - J. Kepler arrives at Fibonacci sequence independently

1710 - First rice exchange opens using empty coupons at Dojima, Japan

1803 - Munehisa Homma writings on his trading principles (b.1724 d.1803)

1868 - Japan changes from Wasan to Western style mathematics.

1902 - Dow dies - William [Link] takes up principles, 27 years to write.

1938 - Monograph entitled The Wave Principle is published. (Elliott Wave)

1969 - Ichimoku becomes widely available by Hosoda

1987 - Peter Steidlemeyer publishes market profile charting techniques .

FINANCIA
L
Introduction to Ichimoku – The History
The term “Ichimoku” can be translated from Japanese as “instant view’ or “one glance”,

“Kinko” is the equivalent of “equilibrium” or “balance” and “Hyo” means “chart”.

Hence the full name “Ichimoku Kinko Hyo” actually means “one glance cloud chart” or more
appropriately “Instant view of the balance chart”.

Goichi Hosoda developed Ichimoku Kinko Hyo in the early Showa era (1926-1989) and
copyright is owned by Kabushiki Kaisha Hendou Souken.

However, Hosoda, a Japanese newspaper writer, only published his findings in 1969 and from
that point forward Ichimoku Kinko Hyo has become a permanent feature in Japanese trading
rooms.

FINANCIAL
MARKETS
Introduction to Ichimoku
The series of lines are very similar to moving averages and are based upon high and low prices.

The two Senkou Span (leading) lines are pushed forward in time to represent past support and
resistance – similar in concept to the idea that once established, support will continue to provide
support until broken when it becomes resistance. The area between the two Senkou Span lines
is shaded to make it look like a cloud.

This “cloud” not only defines the trend, but acts as support and resistance for price.

Cloud = Kumo

FINANCIAL
MARKETS
Ichimoku study = 5 lines are used
1. Tenkan-Sen or Conversion Line = (Highest High+ Lowest Low)/2, for the past p1 periods (9)
(similar to ma but uses high and low not closes measures the strength of the market)

2. Kijun-Sen or Base Line = (Highest High + Lowest Low)/2, for the past p2 periods (26)
(In general, the market trend is bullish when prices are above the base line)

3. Senkou Span A or Leading Span A = (Tenkan-sen+Kijun-Sen)/2, for the past p2 periods (26)

4. Senkou Span B or Leading Span B = (Highest High + Lowest Low)/2, for the past p3 periods, (52) plotted p4 (26) periods ahead.

5. Chikou Line lagging line the most current closing price plotted 26 periods behind the optional

By default p1=9,p2=26,p3=52,p4=26.

Kumo, or cloud is the area between Senkou Span A and B.

A Buy signal is when the Tenkan-Sen crosses Kijun-Sen from below.

A Sell signal is when Tenkan-Sen crosses Kijun-Sen from above.

Clouds play the role of support/resistance areas and help identify trends.
When the price is above the clouds, the trend is bullish. When the price is below the clouds,
the trend is bearish.

FINANCIAL
MARKETS
Tenkan - or Conversion Line - Daily EUR/USD
(Highest High+ Lowest Low)/2, for the past p1
periods) (9)
(similar to ma but uses high and low not closes measures the strength of the market)

TENKAN (Conversion Line)

FINANCIAL
MARKETS
Kijun-Sen or Base Line - Daily EUR/USD
(Highest High + Lowest Low)/2, for the past
p2 periods (26)
(In general, the market trend is bullish when prices are above the base line)

TENKAN (Conversion line)

A Sell signal is when Tenkan-Sen crosses Kijun-Sen from above.

KIJUN (Base line)

(prices indicate end of trend)

breaking base line

A Buy signal is when the Tenkan-Sen

TENKAN (Conversion line)
crosses Kijun-Sen from below.

FINANCIAL
MARKETS
SENKOU SPAN LINES

SENKOU SPAN A - The average price of the conversion and base line values plotted
as a number of periods in advance. The number of periods in the Lead & Lag Period
field determines how far in advance the value is plotted. For example, if the value in
the Lead & Lag Period field is 26 days, the Leading Span A line extends 25 days past
the end date. (26 periods typically).

SENKOU SPAN B - The average of the high and low prices for a past number of
periods plotted in advance. The number of past periods is twice the number in the
Lead & Lag Period field. The number of periods in the Lead & Lag Period field
determines how far in advance the value is plotted. (52 periods typically).

FINANCIAL
MARKETS
Ichimoku – Span lines – EUR/USD Daily chart

These lines are pushed

KUMO/CLOUD forward to act as support
and resistance

SPAN B SPAN A

Senkou Span A or Leading Span A = (Tenkan-sen+Kijun-Sen)/2, for the past p2

periods (26)

Senkou Span B or Leading Span B = (Highest High + Lowest Low)/2, for the past p3
periods, (52)
plotted p4 (26) periods ahead.

“KUMO”= “CLOUD” is distance between these 2 lines

FINANCIAL
MARKETS
4 lines together – EUR/USD
Prices
struggled to
hold above the
cloud

Prices now below the base-line

FINANCIAL
MARKETS
EUR/USD – Chiku line
Overall strength - Strength is shown to be with the
sellers if the Chikou Span is below the current
price. Strength is shown to be with the buyers when
the opposite is true. (26 day lag of prices).

CHIKU LINE

FINANCIAL
MARKETS
All together now for EUR/USD and some simple retracements

Resistance at Chiku and retrace area

FINANCIAL
MARKETS
Historical context – for consideration
Note that Ichimoku relies on only three different time periods in its calculations:
9, 26 and 52. Those periods stem from a history when the system was developed
prior to WWII. Japanese financial markets used to be open for trading on Saturdays,
meaning that the trading week was 6 days long. As a result, the number 9 represents a
week and a half of trading; 26 equals the number of trading days in a typical month (30
minus four Sundays); and 52 equals two months of trading days.

Japanese markets now trade only five days per week and 22 days in a typical month,
so some practitioners of Ichimoku suggest revising the parameters to seven or eight,
22 and 44.

9 days = 1 ½ weeks trading

26 days = 30 days – 4 Sundays thus 1 month

52 days = 2 months

FINANCIAL
MARKETS
EUR/JPY – Daily chart
Prices still way below the
“Cloud” or “Kumo” at present.

Chiku line failed

above the Kijun line

FINANCIAL
MARKETS
GBP/PLN – Daily chart
Strong trend here price action above
all the lines so waiting for a signal of
fatigue still

FINANCIAL
MARKETS
EUR/GBP – Daily chart what can you see?

FINANCIAL
MARKETS
S&P500 – Daily chart what can you see?

FINANCIAL
MARKETS
Bund Z1 – Daily chart what can you see?

FINANCIAL
MARKETS
 Ichimoku summary - checklist
Good for bigger trend plays when you want to figure out is this the start of a potential big trend move.
Used like a moving average oscillator so easy to follow. Quite often black box models have some derivation of
the lines in their calculations.
Keeps you in a trend when it is against you short term, by using the base line as support/stop loss trigger.

-Strong signals - A strong buy signal occurs when the Tenkan-Sen crosses above the Kijun-Sen from below. A strong sell signal
occurs when the opposite occurs. The signals must be above the Kumo.

-Normal signals - A normal buy signal occurs when the Tenkan-Sen crosses above the Kijun-Sen from below. A normal sell
signal occurs when the opposite occurs. The signals must be within the Kumo.

-Weak signals - A weak buy signal occurs when the Tenkan-Sen crosses above the Kijun-Sen from below. A weak sell signal
occurs when the opposite occurs. The signals must be below the Kumo.

-Overall strength - Strength is shown to be with the sellers if the Chikou Span is below the current price. Strength is shown to be
with the buyers when the opposite is true.

-Support/resistance levels - Support and resistance levels are represented by the presence of the Kumo. If the price is entering
the Kumo from below, then the price is at a resistance level. If the price is falling into the Kumo, then there is a support level.

- Trends - Trends can be determined by simply looking at where the current price is in relation to the Kumo. If the price stays
below the Kumo, then there is a downward trend (bearish). Alternatively, if the price stays above the Kumo, then there is an
upward trend (bullish).
FINANCIAL
MARKETS
INTRODUCTION TO MARKET PROFILE CHARTING
•Market profile (MP) uses the evolving market as its database rather than past market history.

•MP is a present tense information source.

•It looks for price distribution by using the bell curve.

•MP does not try to predict the future based on the past, but tries to identify the underlying
conditions of the current market’s movement for continuation or change.
•Primarily it tries to organise chaotic, seemingly random market activity into meaningful,
measurable data segments that can be captured, defined and then monitored.
•MP uses the bell curve to this by organising the data.
•Displays price, volume and time frame, on a single chart.

FINANCIAL
MARKETS
Market profile interpretation
MP invented by J.P. Steidlmayer

The underlying premise is that market players have different timeframes, and those with
shorter timeframes are forced into action by price movement, while those with more time
have more options. Therefore, not all market players are active at the same time. The more
the market moves, the more these players become involved and the easier it becomes to
trade. This leads to some observations:

As prices go up, buying eventually diminishes, and vice-versa for a falling market.

Trends continue until the last long-term buyer or seller executes their trade.

FINANCIAL
MARKETS
Market profile interpretation
There are two types of activity: initiative and responsive.

Initiative activity occurs when players buy at or above (or selling at or below) the red value line,
which indicates an opinion on future direction.

Responsive activity occurs within the value area.

Market Picture divides the trading day into 30-minute sessions for analysis.
If you can figure out quickly enough which profile shape is forming on any given day, then
within a few hours of the market's opening, you can reasonably infer where the markets may
trade for the balance of the day. This is a huge advantage for those trading based on intraday
movement, especially sell-side dealers, buy-side proprietary traders, and outright speculators.

Day traders use this method to establish the market's balance and to look for price levels that
bring players into the market. This is where prices have gone low enough to bring in longer-term
buyers and high enough to attract long-term selling. Most day traders try to establish these levels
in the first hour of the day. Those
who follow the Steidlmayer method try to classify the day into 5 basic distribution profiles.

But first some concepts…

FINANCIAL
MARKETS
The bell curve
The normal distribution curve
What does normal distribution mean?
In statistics when you take a random sample of a population and
measure them for height, you can draw a chart showing how many
people are represented at each unit of height.

A “normal distribution” would show a clustering of people

around the average height with less and less people as you
move towards the extremes. Very short people and very tall
people are less frequent than people close to the average height.
(The “mean”). The bell curve & standard deviation

A plot of the number of people at each unit of height would

show a bell shaped curve (a normal distribution), with 68% of the
total sample within one standard deviation of the average height.

68
%
A normal distribution, with the first 3 std’s in each direction
-3 -2 -1 0 2 3 FINANCIAL
1

MARKETS
Standard deviation calculation
(a) Find the average of all the data points.
2+4+6+3+5 = 20
20/5= 4

(b) Sum all the squares of all the data points.

4+16+36+9+25 = 90

(c) Divide the sum of the squares of all nine data points (b) by the number of data points within the series.
In this case we have five items of data.
90/5 = 18

Subtract the square of (a) from (c) 18-16=2

The Square root of (d) is 1 standard deviation = 1.414

FINANCIAL
MARKETS
The bell curve and market profile
In a market with good two-way trading, and
where the market has established a range, the A Market profile chart
same type of price distribution will be seen. Price
Most activity will occur towards the middle of
the range with the extreme prices seeing little
or no activity and volume.
When price action is plotted using MP, the
same bell shape curve distribution will be
seen with the minor difference that the price
will be on the vertical axis whereas normally in
a statistical chart it would be on the horizontal.
MP tells you about the fairness or unfairness
(degree of acceptance) of the current price
levels.

The trading day is divided into half hour

periods which are labelled alphabetically .
FINANCIAL
MARKETS
Market profile terminology/concepts
•TPO’s (Time price opportunity) : representing each trading 30 min interval by a new letter.

•Initial balance: two time periods (the first hour combined)

•Range extensions: any movement beyond the initial balance is called a range extension and
signifies something has changed because of the other time frame buyer/sellers presence. The
local is not responsible for any major moves in the market.

•The range : refers to the entire height of the Profile – from high to low.

•All activity below the initial balance is the other time frame seller range extensions. All activity
above the initial balance is other time frame buyer range extension.

•Value area: is where 70% of the days trading volume occurs. The value are can be easily
calculated using TPO’s or actual volume/price figures.
FINANCIAL
MARKETS
Market profile concepts

The market place advertises opportunity by offering price away from value.

• A response to this opportunity can be absent.

• A response can be present, taking advantage of the opportunity.

• A response can be opposite, overtaken by initiating activity unperceived by the market place
at that moment. Activity is one which goes counter to the promotion for which the market is
advertising.

• The marketplace is controlled and regulated through the distribution of price and time,
yielding types of natural organisation which produce balance (a “fair” area where two-sided
trades take place).

• 5) The combination of all these components in an active phase is called market activity.

• 6) Market activity is composed of a range of time-price opportunity occurrences, TPO being

the market’s basic unit of measurement.

FINANCIAL
MARKETS
Market profile terminology/Concepts
Single-print buying tail: Must be at least two TPO’s long indicating that other timeframe
buyers responded strongly to prices advertised below the value, rejecting price out of the lower
range in one time period. The longer the tail, the stronger the other time frame activity.

Single-print selling tail: Shares the same significance as the other time frame buying tail. The
seller reacted to higher prices quickly moving price lower. Attempts to auction beyond the single
print tail by trading up in that price range in subsequent time periods met strong resistance,
showing seller strength at those prices.

Point of Control: The longest line of TPO’s closest to the centre of the range. This is where
most price activity occurred during the day (Therefore the fairest price in the day timeframe).

Closing range: is the markets last indication of sentiment for the day. It’s used as a reference
point again at the following sessions open to see if the underlying sentiment has changed.

FINANCIAL
MARKETS
Profile example 97 10/32 A
97 9/32 A
A
A
A
A Single print selling tail
97 8/32 A A A
97 7/32 A A A
97 6/32 A AC AC
Initial balance 97 5/32 A AC AC
97 4/32 AB ABC ABC
Closing range
97 3/32 AB ABCD ABCD
97 2/32 AB ABCD ABCDGL
97 1/32 AB ABCD ABCDGHJLM
97 0/32 AB ABD ABCDGHJLM The range
96 31/32 AB AD ABDFGHILM
96 30/32 A AD ADFGGHIJL
96 29/32 A A ADEFGHIJL

Range extension 96 28/32 . D DEFJL Value area

96 27/32 . D DEFJL
96 26/32 . D DEJKL
96 25/32 . . EJKL
96 24/32 . . KL
96 23/32 . . K
96 22/32 . . K
Control point
96 21/32 . . K
96 20/32 . . K
96 19/32 . . K
Responsive buyer
96 18/32 . . .
96 17/32 . . .
A-B A-D A-L
Single print buying tail
FINANCIAL
MARKETS
Market profile chart

FINANCIAL
MARKETS
Point of control
The point of control is the equivalent of the average when calculating Standard Deviation.

In the case of market profile, it is not an actual average, but the price at which the greatest
amount of activity takes place during the day.

There are 3 different methods available to define this point of greatest activity:

1) HIGHEST NUMBER OF TPO’s

2) GREATEST TICK VOLUME

3) HIGHEST ACTUAL VOLUME

FINANCIAL
MARKETS
POINT OF CONTROL – Highest number of TPO’s

Find the price with the greatest number of 112.00

Horizontal TPO’s against it. 111.90 H
111.80 A H I
If there were found to be more than one price 111.70 A D H I
with the highest number of TPO’s then choose 111.60 A B D H I
that price nearest to the centre of the total 111.50 A B C D H I
day’s range. 111.40 A B C D F G I
111.30 B C D E F G greatest
111.20 B C D E F Number of TPO’s
111.10 B C E F
111.00 C E
110.90 E
110.80
110.70 One day’s data in 30
minute increments per
letter

FINANCIAL
MARKETS
POINT OF CONTROL – Greatest Tick Volume

If you are using software to run Market Profile, 112.00

111.90 H
Look for the price where the greatest tick 111.80 A H I
volume occurs. 111.70 A D H I
111.60 A B D H I
111.50 A B C D H I
This is the price at which the market has seen greatest tick
111.40 A B C D F G I
the greatest number of price changes, which is volume
111.30 B C D E F G
a substitute for true volume. This will be the
111.20 B C D E F
point of control and should take precedence
111.10 B C E F
over the TPO method.
111.00 C E
110.90 E
110.80
110.70
One day’s data in 30
minute increments per
letter

FINANCIAL
MARKETS
POINT OF CONTROL – Highest actual volume
In theory this should be the most accurate, but in
practice most of the time it unfortunately is not.
112.00
The difficulty is actually finding out the real 111.90
information. Be aware that while many 111.80 A H 4213
exchanges report volume, it is notoriously 111.70 A D 13221
inaccurate. 111.60 A B D 14333
111.50 A B C 19887
Some exchanges report identical volume for 111.40 A B C D 18898 Highest
most trades (ie. every trade might be assigned 111.30 B C D 16554 actual volume
with a volume of 50 lots) and then the total 111.20 B C D 12110
volume figure is adjusted during the day when 111.10 B C 3901
the picture becomes clearer. 111.00 C 1189
110.90
This will give a profile based on tick volume 110.80
where the unadjusted trades occur and an 110.70
One day’s data in 30
incorrect jump in volume where the adjustments minute increments per
appear. In this case you are better off using the letter
previous two methods as you would be working
with incorrect volume data. FINANCIAL
MARKETS
Market profile – One big
auction
The market price action is in effect
an auction. 112.00
Prices are raised until sellers 111.90 H
appear or lowered until buyers Opening 111.80 A H I
price 111.70 A D H I Last price
appear.
111.60 A B D H I
All participants do not have the
111.50 A B C D H I
same view as to their optimal
Mid-point 111.40 A B C D F G I Value area
timeframe, and therefore the raising
111.30 B C D E F G
of prices by short-term players may
111.20 B C D E F
well be met by sellers who have a
111.10 C E
long-term view as well as sellers
111.00 E
who are trading only for a quick Point of control
110.90
turn.
110.80
The same holds true for prices 110.70 One day’s data in 30 minute
being driven lower by short-term
increments per letter
players and being met by long-term
buyers. Initial balance

FINANCIAL
MARKETS
Initiative and Responsive Price Action
Market participants either try to move prices away from an area which was previously accepted
as being an acceptable area of value or they try to bring prices back to the value areas when they
have moved away.
Recognising the difference between these two types of price action is key to understanding the
information that Market Profile is providing you with, and more importantly for you to be able to
trade successfully using this methodology.
Two Day Analysis: Initiative or Responsive Action
Having established the value area for day 1, we are now analysing trading for the following day.
If we observe price action that is not only moving the price away from the previous day’s value
area, but is also accepting these new levels, then price action is initiative.
If, on the other hand, we see the price move away from the value area and it becomes apparent
that market action is looking to reverse the move, the price action is responsive.

There are 5 basic distribution profiles

FINANCIAL
MARKETS
MP Basic distribution profiles : Non-trend day

The market will normally have a very narrow range with

limited market participants. 1152 ABC

Even the short-term traders will show limited interest. 1151 ABCDEFJK
Volume will be low.
1150 ABCDEFGHIJKLM
A popular trading tactic with this type of pattern is to stay out
1149 ABCDEFGHIJKLM
of the market until a break occurs and then to go with it.
1148 ABFGHKLM
Normally you should expect to see an increase in volume on
this type of breakout.

Unless you have very low trading costs and excellent

facilities for executing trades, it would be advisable to stay
out of this type of market.

This pattern is often seen in European markets on a U.S.

holiday.
FINANCIAL
MARKETS
MP Basic Distribution profiles – Normal Distribution
1152
1151 B
There will be no range extensions
The range for the day will be set in the first hour 1150 BCIK
1149 ABCIK
Money is made by selling rallies above the Point 1148 ABCFIJK
of Control and buying dips below this level,
1147 ABCFHIJK
(generally best attempted in the last third of the
range). 1146 ACEFHJIC
1145 ACEFGHIJK
A wide range in the initial balance coupled with 1144 ADEGHJK
the single Print Tails on both the top and the
1143 ADEGHJK
bottom is often a good indication that the market
is going to range trade for the entire day. 1142 ADEGK
1141 DG
1140 D

Initial balance sets up the

range for most of the day
FINANCIAL
MARKETS
MP Basic Distribution Profiles – “Teardrop”
1152 A
1151 A
•A day when there is rapid directional movement before it
1150 A
•levels of then forms the bulk of the distribution at the lower
•end of the range. 1149 A
1148 A
•This is normally driven by fundamental events that move the market 1147 A
• to a knee jerk response which then comes to terms with the news
1146 ABI
•and settles.
1145 ABDFHGI
•The initial balance tends to offer the range extremes for the 1144 BCDFGHI
•session. 1143 BCDFGHI
1142 BCDFGHI
1141 BCDEFG
1140 BCEF
1139 BE

FINANCIAL
MARKETS
MP Basic Distribution Profiles – The “Trend day” 1152 ABC
1151 ABC
The first characteristic of a Trend Day is the initial balance is normally 1150 ABDE
small.
1149 BCDEF

A small base makes it easy for an object to be toppled over and, as we 1148 CDEFG
have mentioned earlier, it is no different in the market place. 1147 CEFG
1146 EFGH
Range extremes appear in multiple time periods and in one direction.
1145 FGH

The locals or short-term traders cannot get control of the market as the 1144 GHI
traders/investors with longer term views have taken control. 1143 HIKL
1142 HJKL
It is usual to find that where you may have 10 or more TPO’s at the
1141 IJKLM
control
point on a normal day, it is likely that on a Trend Day you will see only 4 1140 IJKLM
or 5 1139 IJKLM
TPO’s at the widest point. 1138 I

FINANCIAL
MARKETS
MP Basic Distribution Profiles – “Multiple Distribution Trend”
•Short-term shift from one trading range to another trading range. 1151 L
1150 HL
•Maybe the market was expecting some news (eg. payrolls). 1149 HJKL
1148 HJKLM
•The I.B. will be small but there is a good chance that range 1147 HIJKLM
Second
•extensions will have been seen, albeit relatively small. 1146 GHIJKL
Distribution
1145 GHIJK

•As expected the news breaks the market will move quickly to a 1144 G

•new level, leaving a series of single TPO prints (more likely 2 1143 G

prints). 1142 G
1141 FG

•One the market reaches this new level it doesn’t continue to 1140 FG Support zone
trend. 1139 BDEFG for next day
1138 BDEF
1137 BCDEF
•It is almost as if the market has started afresh and the market will
1136 ABCDEF
•start to form a pattern like a Normal Day.
1135 ABCDEF
1134 AB
•With this pattern it is very important to watch the late trading
1133 AB
within that day. In this example support will surface where
1132 A
the single TPO’s lie under the secondary distribution.
FINANCIAL
MARKETS
The Intra-day TPO count: Key for predicting future market activity
This count highlights the balance between buying and selling activity in relationship to
previously accepted values.
This analysis may be started at any time after the initial balance has been made, but tends to
be more accurate from the 4th period and thereafter.
The first item to be identified is the Point of Control (PofC) and this should be done by finding
the price level with the greatest number of TPOs against it, or in the case where a number of
price levels have the same high number of TPOs the price in this group nearest the mid-point
of the total range for the day.
The next step is count the total of TPOs above the (PofC), excluding single TPOs.
Why exclude these TPOs ?
We are looking to see where the market participants have their net long positions located and
the chances are that single TPOs are going to be extremely low volume areas. By only
including multiple TPO price levels we are only including levels where the best opportunity of
two way trading has taken place.
Once you have counted the TPO’s above the (PofC), repeat this step for the TPOs below the
(PofC), excluding single TPOs.

FINANCIAL
MARKETS
The Intra-day TPO count (Identifying trading opportunities)
6285 A
6280 A
6275 ADE Intra-day TPO count with imbalance
6270 ADEF putting pressure to turn the market
6265 ACDEF back up towards the POC at
6260 ACDEF
6255 ACDEF
6250 ABCDEF
6245 A B C D E F G (35)
6240 ABCDEFG …………………………………..…….6240
6235 A B C D E F G (44)
6230 ABCDEFG
6225 ABCDEFG Note the single prints are
6220 ABCEFG Point of control not included in the count
6215 ABCFG
6210 ABCFG
6205 ABG
6200 BG
6195 BG
FINANCIAL
MARKETS
The Intra-day TPO count
6275 ADE
6270 ADEF
6265 ACDEF As trading continues, the P of C shifts
6260 ACDEF lower and the TPO count is now putting
6255 ACDEF pressure on the market to the downside.
6250 ABCDEF
6245 ABCDEFG Again no single prints are included.
6240 ABCDEFG
6235 ABCDEFGH
6230 A B C D E F G H (58)
6225 ABCDEFGH Point of control
6220 A B C E F G H I (32)
6215 ABCFGH I
6210 ABCFGH I
6205 ABGHI
6200 BG I
6195 BG
6190 B
6185 B
FINANCIAL
MARKETS
Identifying trading opportunities from the TPO count
By trading in line with the trend, the overall position of the price area and the TPO count, you will
have the possibility of making trades with a very high probability of success.

The importance of the overall position of the price area must also be stressed.

While the current trend is important, it should be remembered that a chart shows a line moving
higher is not a chart that says “This price is going up”. It actually says “This price went up”.

Only by looking at other factors can you imply a probability of whether the apparent trend will
continue. If the price currently being traded is at the extremes of a longer term distribution, then
the probability that the trend is likely to reverse is much higher.

Moving back to the intra-day price action, the dynamics change when the markets build an
imbalance in the TPO’s either side of the POC and the POC shifts towards the side with the
greater number of TPO’s ( which would be the normal situation).

This will shift the imbalance to the other side of the POC and put pressure on the market in the
direction of the change seen in the POC.

A market where two or three reversals of this nature are seen fairly often develops into the type
where the days range is exceeded on numerous occasions on both sides.
FINANCIAL
MARKETS
Identifying trading opportunities from the TPO count.
Each breakout into new high or low ground on the day is followed by a failure and a return to the
other extreme. The market is deemed as choppy and becomes a trend followers nightmare.
For the MP trader this represents multiple trading opportunities with small risk.

SINGLE TPO COUNTS

When the market only prints one TPO against a series
of prices, it is a sign of rejection.
112.00
The absence of single TPOs does not in itself mean that 111.90
a price has been accepted as being of value. 111.80
111.70 A
In the case there a where a price trades to a new daily 111.70 A D
extreme it is possible that it does so towards the end of a 111.60 ABD
half-hour time period. The next period then comes into 111.50 ABCD
play before the market has had time to reject the move. 111.40 ABCD Single prints
111.30 BCD
In this case you are likely to see double TPOs at the 111.20 BCD
rejected level, but the rejection is equally as valid as that 111.10 BC
where only a series of single TPOs have been seen. 111.00 C
FINANCIAL
MARKETS
RXZ1 – what can we see?

FINANCIAL
MARKETS
S&P 500 Z1 what can we see?

FINANCIAL
MARKETS
SPOT GOLD – what can you see?

FINANCIAL
MARKETS
Gilt Z1 compare the different signals from the same data

FINANCIAL
MARKETS
Market profile - Summary
ADVANTAGES: DISADVANTAGES:

MP is one of the few analysis technique that •Lack of quality targeting

tells the trader/analyst what the current
situation is in the market. •Could argue that as the information that the
system gives you is always current, then
Many other techniques have a high degree of
targets become far less important.
probability built into the analysis and once
the analysis has been made it is difficult for •Targets are more important when your
that indicator to give a quick signal that the
methodology is slow to react to changes.
market sentiment is changing. This is the
When the target is still accurate in the longer
reason why many analysts use a variety of
term, it gives the trader confidence to remain
indicators to monitor the markets.
in the position.
With MP it is possible to maintain control
using solely the one method, although that •MP is not really designed to predict, it
does not mean that it is not possible to provides the analyst with the tools to visualise
enhance these signals with additional the market’s future potential development.
information.
•This not as the same as predicting.

FINANCIAL
MARKETS
 ENVIRONMENT

Historical data
Look for repetitive behaviour/Cycles
X Market check Various Techniques

Related markets Myriad of choices

Opposite markets Elliott Wave/Candles/Gann
Fly’s, curves Rule of 7, Oscillators
Yield/Price RofC

Top/down approach Fundamentals Support/Resistance

Political/market specifics T-lines broken/intact
Big picture/small picture/vice versa
Ma’s/%R techniques/Filters

FINANCIAL
MARKETS