Market profile is a powerful tool that forex traders can use to gain insight into the market and make more informed trading decisions. The market profile is a visual representation of the market that displays the price and volume data of each trading session. The market profile is used by traders to identify key levels of support and resistance, as well as to determine the overall trend of the market.
In this article, we will discuss how to use the market profile in forex trading in 2015.
Understanding the Market Profile
The market profile is a charting technique that displays the price and volume data of each trading session. It is a visual representation of the market that shows the distribution of price and volume over time. The market profile is based on the concept of market value, which is the price level where the most trading activity occurs.
The market profile is composed of a series of horizontal bars, each representing a trading session. The bars are arranged in a vertical column, with the most recent trading session at the top and the oldest trading session at the bottom. The height of each bar represents the total volume traded during that session, and the width of each bar represents the price range for that session.
Using the Market Profile to Identify Key Levels of Support and Resistance
One of the most important uses of the market profile in forex trading is to identify key levels of support and resistance. Support and resistance levels are price levels where the market has historically had difficulty breaking through. These levels can provide valuable information to traders, as they can be used to identify potential entry and exit points for trades.
To identify key levels of support and resistance using the market profile, traders should look for areas where the market has spent a significant amount of time trading. These areas will be represented by a cluster of bars on the market profile chart. The more bars that are clustered together, the stronger the level of support or resistance is likely to be.
Using the Market Profile to Determine the Overall Trend of the Market
Another important use of the market profile in forex trading is to determine the overall trend of the market. The market profile can provide valuable information on the direction of the market, as well as the strength of the trend.
To determine the overall trend of the market using the market profile, traders should look for areas where the bars are clustered together in a specific direction. If the bars are clustered together in an upward direction, this indicates that the market is in an uptrend. If the bars are clustered together in a downward direction, this indicates that the market is in a downtrend.
Using the Market Profile to Identify Trading Opportunities
The market profile can also be used to identify trading opportunities in the forex market. Traders can use the market profile to identify areas of congestion in the market, where the price is moving sideways. These areas can be used to identify potential breakout trades, where the price breaks out of the congestion and moves in a specific direction.
Traders can also use the market profile to identify areas of low volume, where the market is relatively quiet. These areas can be used to identify potential reversal trades, where the market reverses direction and moves in the opposite direction.
Conclusion
In conclusion, the market profile is a powerful tool that forex traders can use to gain insight into the market and make more informed trading decisions. The market profile can be used to identify key levels of support and resistance, determine the overall trend of the market, and identify trading opportunities. Traders who learn how to use the market profile effectively can gain a significant edge in the forex market in 2015.
