Market Profile charts offer a truly unique way of looking at market data. Many traders and investors believe that it is the best way to chart market data. In order to understand and appreciate the benefits of Market Profile charts, we need to briefly review and look at some of the other types of charts that are available.
Personal computers now make it possible to view and display market data in a wide variety of formats. Nevertheless, almost all of these various chart types will fall into two basic categories: either they will be time-based charts or non-time based charts. Time-based charts are constructed by displaying price movements for specified periods of time on a chart. These time periods are specified by traders based on the time frame that they trade. The time period specified for a chart could be in minutes, days, weeks or months. The two most common and frequently used time-based charts are the bar and candlestick charts.
Non-time based charts include the Renko charts, tick charts, volume bar charts, range bar charts, and point and figure charts. These are all based on a study of pure price movement that is completely independent of time. In other words, they do not take time into consideration when plotting price movements. They will only display price movement. The idea of non-time based charts is not new to the markets. The earliest non-time based charting technique is the point and figure charting process. This chart type dates back to the turn of the twentieth century. It was extremely popular in the early days before computers were available because point and figure charts were very simple to plot and helped traders to identify trends and reversals as well as levels of support and resistance. Even though the technique seemed to have lost much of its appeal in the past two decades, it is starting to re-emerge as a popular tool once again.
Market Profile charts, on the other hand, offer a completely different way of looking at the market. While they track both time and price in the market, they also allow us to view the price movement in the context of actual market activity as it develops. The Market Profile chart displays each time period of market activity in a separate column on a vertical axis with an ascending price scale. To help us understand the Market Profile chart structure, we will begin by looking at the basic building blocks of the chart and the concepts that are involved in building it. We will begin by examining the Time Price Opportunities (TPO) on the chart in conjunction
with other key Profile chart elements.