Who this is for — Anyone who wants to organise a session as an auction process and distinguish where the market returned in multiple time intervals from where it simply traded more volume.
Market Profile organises the prices and time intervals of a session through TPOs (Time-Price Opportunities). A letter indicates that a price level was traded at least once during a given time bracket. The resulting distribution describes how the range developed.
In plain terms — If bracket A visits a price, an A is printed on that row; if bracket B returns to the same price, a B is added. The letters count visits by interval, not contracts traded and not exact minutes.
How it is built
In plain terms — The profile depends on configuration choices. Changing the session, bracket duration, or row width can change its shape.
- Define the session and time zone.
- Divide the session into time brackets; the classical construction often used 30-minute brackets.
- Aggregate prices into rows according to the chosen tick or increment.
- For each bracket, mark every price row visited at least once.
- Compress the letters to show how many brackets are present at each price.
A TPO is therefore a discretised variable: an A does not distinguish one pass from repeated activity inside the same bracket.
Example — With 30-minute brackets, price 100 is visited in A, C, and D: the row contains three TPOs. If 10 contracts trade in A and 1,000 in C, A and C still contribute one TPO each, while D contributes the third; volume preserves the difference between the quantities traded.
Market Profile and Volume Profile
In plain terms — The two profiles can look similar, but answer different questions: “in how many intervals was this price visited?” versus “how much quantity traded here?”
| Element | TPO / Market Profile | Volume Profile |
|---|---|---|
| Unit | Time bracket that visited the price | Quantity traded at the price |
| POC | Row with the most TPOs | Row with the most volume |
| Depends on | Session, bracket, and row size | Session, feed, and trade aggregation |
| Information absent | Quantity within the bracket | Distribution of visits through time |
To avoid ambiguity, write TPO POC or Volume POC. They need not be at the same price.
POC and Value Area: declare the algorithm
In the 1996 CBOT manual, the “fairest price” of the TPO profile is the price present in the greatest number of time brackets. If several rows tie, the one closest to the midpoint of the entire range is selected.
The same guide distinguishes:
- a Volume Value Area, an interval containing 70% of session volume in the example;
- a TPO Value Area, derived from profile rotations.
Modern software can apply different conventions, such as expanding from the POC until a target percentage is reached. To make the result reproducible, declare the algorithm, threshold, tie-break, session, and row size. Saying only “70% Value Area” does not identify a universal method.
Typical mistake — Naming a POC or Value Area without specifying whether it comes from TPOs or volume. The label is the same, but the underlying statistic can differ.
Initial Balance and range development
The Initial Balance (IB) is the range formed during the opening phase of a session according to the convention used. The CBOT guide uses IB and range extension to describe four developments:
| CBOT type | Historical description |
|---|---|
| Normal | The IB contains about 85% or more of the range; extension is absent or slight |
| Normal Variation | One-sided extension, from a few ticks up to about twice the IB |
| Trend | Directional movement and close at an extreme; extension considerably beyond twice the IB |
| Neutral | Range extension in both directions |
These categories describe the observed development of the CBOT futures studied in the manual. They are not universal probabilities or automatic signals. Graphical shapes later called D, P, or b should not be used as synonyms for the four original types without a source and an explicit definition.
What can be inferred
The profile can describe:
- prices visited in more or fewer brackets;
- the width of the Initial Balance and subsequent extensions;
- the position of the close within the range;
- a transition from rotation to directional movement;
- relationships between sessions, when they are built with consistent rules.
By itself, it does not prove who “controls” the market, the cause of a move, or the direction of the next session. POC, extremes, and Value Area are descriptive references; an operational rule requires an ex-ante definition, consistent data, costs, and validation on the market concerned.
Summary card
- TPO: presence of a price in a time bracket, not volume.
- Parameters: session, bracket, and row size must be declared.
- POC/VA: distinguish TPO and volume versions.
- Use: auction description; no shape is an automatic trade.
Sources
- Chicago Board of Trade, CBOT Market Profile®, Part I: Reading the Market Profile Graphic, 1996, pp. 14–21, 33, and 44 — TPOs, Initial Balance, range extension, four day types, fairest price, and the distinction between TPO and Volume Value Area.
- J. Peter Steidlmayer and Kevin Koy, Markets and Market Logic, Porcupine Press, 1986, section I, chapter 6 — TPO as a time-price unit and the organisation of market activity.