Market Profile & Order Flow

Market Profile is one of the most powerful analytical tools available to traders. Developed by J. Peter Steidlmayer at the Chicago Board of Trade (CBOT) in the 1980s, it organizes price data in a way that reveals where the market spent its time and where the most business was transacted — not just what the closing price was.

While a standard candlestick chart shows Open, High, Low, Close — Market Profile shows the entire distribution of trading activity across price levels. Combined with Order Flow analysis, it gives you a near-complete picture of institutional behavior.

Auction Market Theory: The Foundation

Before understanding Market Profile, you need to understand Auction Market Theory (AMT) — the principle that all markets are auctions.

The core idea: Markets exist for one purpose — to facilitate trade. Price moves up until buying interest fades, then down until selling interest fades. This constant auction process creates a natural equilibrium.

Concept	Definition	Implication
Fair Value	The price range where both buyers and sellers are satisfied	Price spends most time here
Unfair High	Price too high — buyers step away, sellers enter	Price rejects and moves down
Unfair Low	Price too low — sellers step away, buyers enter	Price rejects and moves up
Balance	Price oscillating in a fair value range	Consolidation — breakout coming
Imbalance	One side (buyers or sellers) dominates	Trending move away from value

AUCTION MARKET THEORY:

          Unfair High (sellers dominate)
                    ╱╲
                  ╱    ╲   Rejection
                ╱        ╲
    ┌─────────────────────────────┐
    │         FAIR VALUE          │  ← Price spends 70% of time here
    │     (Balance / Value Area)  │
    └─────────────────────────────┘
                ╲        ╱
                  ╲    ╱   Rejection
                    ╲╱
          Unfair Low (buyers dominate)

Market Profile Basics

What Is a TPO (Time Price Opportunity)?

A TPO is a letter placed at a price level for each time period that price traded at that level. Each 30-minute period gets a different letter (A, B, C, D...).

MARKET PROFILE — ONE DAY:

Price   TPOs (each letter = 30-min period)
────────────────────────────────────
$155  │ H
$154  │ GH
$153  │ FGH
$152  │ EFGHIJ         ← VAH (Value Area High)
$151  │ CDEFGHIJKL
$150  │ BCDEFGHIJKLM   ← POC (Point of Control — most TPOs)
$149  │ ABCDEFGJKLM
$148  │ ABCDEKLM       ← VAL (Value Area Low)
$147  │ ABM
$146  │ A
────────────────────────────────────
        ↑               ↑
     Open (A)        Close (M)

A = 9:30-10:00    F = 12:00-12:30    K = 14:30-15:00
B = 10:00-10:30   G = 12:30-13:00    L = 15:00-15:30
C = 10:30-11:00   H = 13:00-13:30    M = 15:30-16:00
D = 11:00-11:30   I = 13:30-14:00
E = 11:30-12:00   J = 14:00-14:30

Key Market Profile Terms

Term	Definition	Trading Significance
POC (Point of Control)	Price level with the most TPOs	Strongest magnet — price returns here; acts as support/resistance
Value Area (VA)	Range containing ~70% of the day's TPOs	The "fair value" zone; most accepted prices
VAH (Value Area High)	Upper boundary of the Value Area	Resistance level; selling opportunity if price comes from below
VAL (Value Area Low)	Lower boundary of the Value Area	Support level; buying opportunity if price comes from above
Initial Balance (IB)	Range of the first hour (periods A + B)	Establishes the framework for the day
Single Print	A price visited by only one TPO letter	Shows fast rejection; price moved through quickly
Poor High/Low	Flat high or low (multiple TPOs at extreme)	Incomplete auction — likely to be revisited
Excess	Single TPO tails at extremes	Strong rejection; complete auction — less likely to be revisited

The Initial Balance

The Initial Balance (IB) is the price range established during the first hour of trading (periods A and B). It's one of the most important concepts in Market Profile.

Why the IB matters:

Sets the "expected range" for the day
Breakout above/below IB signals directional conviction
IB width indicates the likely day type

IB Size	Interpretation	Expected Day Type
Wide IB (large range in first hour)	Strong conviction from the open	Likely a range day — price stays within or near IB
Narrow IB (small range in first hour)	Indecision at open	Likely a trend day — price will break out of IB
IB holds all day	Balanced market	Normal/rotational day
IB broken one side	Directional conviction	Normal variation day
IB broken both sides	Volatile, uncertain	Neutral day

INITIAL BALANCE CONCEPTS:

NARROW IB → TREND DAY:              WIDE IB → RANGE DAY:

       ╱                              ┌──────────┐
      ╱                               │          │
     ╱                                │   IB     │ Price stays
    ╱  ← Breakout above               │  (Wide)  │ inside the IB
   ┌┐  ← Narrow IB                    │          │ all day
   └┘                                 └──────────┘

Profile Shapes & Day Types

The shape of the completed Market Profile tells you what type of day it was, which helps predict the next session.

Normal Day (Bell Curve)

              ███
           ████████
        ████████████
      ████████████████   ← Wide, bell-shaped profile
        ████████████        Balanced market
           ████████         Fair value well-established
              ███

Characteristics: Wide IB, price rotates around POC, 70% rule applies. Most common day type. Next day expectation: Likely to open within the value area.

Trend Day

   ██                    ██
   ████                    ████
   ██████                    ██████
   ████████                    ████████
   ██████████                    ██████████
   ████████████   OR           ████████████
   ██████████████                ██████████████
  (Trend Up)                   (Trend Down)

Characteristics: Narrow IB, price breaks out and never returns, elongated profile, single prints. Next day expectation: Often a corrective/rotational day follows.

Double Distribution Day

      ████████
    ████████████    ← Upper distribution
      ████████
         █          ← Single prints (fast move)
         █
      ████████
    ████████████    ← Lower distribution
      ████████

Characteristics: Two separate value areas connected by single prints. Shows a significant shift in value. Next day expectation: Price likely to test back to the single prints, then continue in the breakout direction.

P-Shape Profile (Bullish)

      ████████████
    ████████████████
      ████████████   ← Fat top = buying accumulated
         ████           at higher prices
         ████
         ██          ← Thin bottom = rejected quickly
         █

Interpretation: Short covering rally or bullish accumulation. Buyers controlled the session.

b-Shape Profile (Bearish)

         █
         ██          ← Thin top = rejected quickly
         ████
         ████
      ████████████   ← Fat bottom = selling accumulated
    ████████████████     at lower prices
      ████████████

Interpretation: Long liquidation or bearish distribution. Sellers controlled the session.

Value Area Analysis

The Value Area Rule is one of the most practical trading tools from Market Profile.

The 80% Rule

If the market opens outside the previous day's value area and then moves back inside the value area, there is an ~80% chance it will rotate all the way through to the other side of the value area.

THE 80% RULE:

Previous Day VA:
┌───────────────┐ VAH = $152
│               │
│  VALUE AREA   │ POC = $150
│               │
└───────────────┘ VAL = $148

Today opens below VAL at $146, then moves up into VA:

  $152 ─── VAH ──────────────────────────────────
                              ╱ ← 80% chance price
  $150 ─── POC ─────────────╱     reaches VAH!
                           ╱
  $148 ─── VAL ──────────╱─────────────────────────
                        ╱ ← Price re-enters VA
  $146 ── Open ───────╱

Value Area Relationships (Day-to-Day)

Today's Open vs Yesterday's VA	Interpretation	Trading Approach
Inside VA	Balanced, rotational	Trade the range (VAL to VAH)
Above VAH	Bullish — acceptance higher	Look for longs; use VAH as support
Below VAL	Bearish — acceptance lower	Look for shorts; use VAL as resistance
Above VAH but falls into VA	Failed breakout; apply 80% rule	Expect rotation to VAL
Below VAL but rises into VA	Failed breakdown; apply 80% rule	Expect rotation to VAH

Naked POC and Developing POC

Naked POC

A Naked POC is a Point of Control from a previous session that has never been revisited. It acts as a magnet — price tends to eventually return to test it.

Developing POC (dPOC)

During the trading day, the POC shifts as new volume builds. Watching where the dPOC migrates tells you:

dPOC moving up → buyers accumulating at higher prices (bullish)
dPOC moving down → sellers distributing at lower prices (bearish)
dPOC static → balanced, no directional conviction

Order Flow Fundamentals

Order Flow analysis goes one level deeper than Market Profile by examining individual transactions — who is buying, who is selling, and how aggressively.

The Order Book (DOM — Depth of Market)

ORDER BOOK / DOM:

    Bid Size    Price    Ask Size
    ────────────────────────────
                $152.50    500
                $152.25    800
                $152.00   1200  ← Resistance (thick ask)
    ─────────── SPREAD ───────────
     800        $151.75         ← Best Bid
     600        $151.50
    1500        $151.25         ← Support (thick bid)
     400        $151.00

Spread = $152.00 - $151.75 = $0.25

Key Order Flow Concepts

Concept	Definition	What It Tells You
Market Order	Immediate execution at best available price	Shows urgency — aggressive buyers/sellers
Limit Order	Resting order at a specific price	Shows patience — passive support/resistance
Volume Delta	Buy volume minus sell volume for a bar	Who was more aggressive (buyers or sellers)
Cumulative Delta	Running total of delta	Reveals underlying buying/selling pressure trend
Absorption	Large resting orders "absorbing" market orders	Institutional support/resistance that doesn't show on chart
Iceberg Orders	Large orders hidden behind small displayed size	Smart money hiding their true position size

Volume Delta

Volume Delta is the difference between aggressive buying (market orders hitting the ask) and aggressive selling (market orders hitting the bid).

VOLUME DELTA ANALYSIS:

           Price      Delta
Bar 1:     ┌──┐      +500   (more aggressive buying)
           │  │
           │  │
           └──┘

Bar 2:     ┌──┐      -800   (more aggressive selling)
           │  │
           │  │
           └──┘

Bar 3:     ┌──┐      +200   (slightly more buying)
           │  │
           │  │
           └──┘

Cumulative Delta: +500 - 800 + 200 = -100 (net selling pressure)

Delta Divergence: When price makes a new high but cumulative delta is declining — aggressive buyers are weakening. This is a powerful reversal signal.

Absorption (Institutional Defense)

Absorption occurs when large limit orders sit at a price level and "absorb" all incoming market orders without price moving.

ABSORPTION AT SUPPORT:

Price
  │
  │  ╲      Aggressive selling (market orders)
  │    ╲         ↓
  │      ╲    ████████  ← Price hits support
  │      ╱    ████████  ← Large bid absorbs ALL selling
  │    ╱      ████████  ← Volume is HIGH but price doesn't drop
  │  ╱
  │
  ← Buyer absorbed thousands of contracts
     Price bounces because the passive buyer won

Footprint Charts

A Footprint Chart (also called a cluster chart) shows the bid and ask volume at each price level within every candle. It's the most granular view of order flow.

FOOTPRINT CHART — SINGLE CANDLE:

Price   Bid Vol  ×  Ask Vol    Delta
─────────────────────────────────────
$152   |   50   ×   200   |   +150   ← Strong buying at highs
$151   |  100   ×   300   |   +200   ← Most aggressive buying
$150   |  400   ×   150   |   -250   ← Heavy selling absorbed
$149   |  200   ×   100   |   -100   ← Selling pressure
$148   |   80   ×    50   |    -30   ← Quiet at lows
─────────────────────────────────────
Total:    830       800       -30

Reading: Despite near-equal total volume, the BUYING was
concentrated at the top of the candle, while SELLING was
concentrated at the bottom. This candle was absorbed by
a large buyer at $150 — BULLISH.

Footprint Imbalances

An imbalance occurs when the bid or ask volume at a price level is significantly larger (3x+) than the opposing side at the adjacent price.

Pattern	What It Means	How to Trade
Stacked bid imbalances (3+ in a row)	Strong passive buying — institutional support	Expect price to bounce; look for longs
Stacked ask imbalances (3+ in a row)	Strong passive selling — institutional resistance	Expect price to reject; look for shorts
Diagonal imbalance	Aggressive momentum in one direction	Continuation expected

Trading with Market Profile: Step-by-Step

Step 1: Pre-Session Preparation

Before the market opens, mark these levels on your chart:

Level	Source	Purpose
Yesterday's POC	Previous session profile	Primary magnet/target
Yesterday's VAH	Previous session profile	Upper boundary — resistance
Yesterday's VAL	Previous session profile	Lower boundary — support
Naked POCs	Unfilled POCs from prior sessions	Target levels for mean reversion
Developing VPOC	Current multi-day profile	Larger context fair value

Step 2: Assess the Open

Open Type	Definition	Expected Behavior
Open-Drive	Aggressive move from the open, no look-back	Trend day likely — trade the direction
Open-Test-Drive	Tests one direction, then drives the other way	Confirm the reversal, trade the drive
Open-Rejection-Reverse	Opens outside VA, rejects back inside	Apply the 80% rule
Open-Auction	Opens inside VA, rotates within	Range-trade VAL to VAH

Step 3: Monitor the Initial Balance

If IB is narrow → expect a breakout and trend
If IB is wide → expect rotation within IB
Watch for IB extension (price breaking above/below the first hour's range)

Step 4: Track Profile Development

Where is the dPOC migrating?
Is the profile one-time framing (all higher highs or lower lows on each time period)?
Are single prints forming (fast directional moves)?

Step 5: Enter Based on Confluence

The highest-probability trades combine:

Price at a key MP level (VAH, VAL, POC)
Order flow confirmation (absorption, delta divergence)
Context (day type, IB analysis, open type)

Step 6: Manage Risk

Entry Type	Stop Loss	Target
VAL long (80% rule)	Below VAL by 1 ATR	VAH or POC
VAH short (80% rule)	Above VAH by 1 ATR	VAL or POC
IB breakout long	Below IB low	1.5× IB range extension
IB breakout short	Above IB high	1.5× IB range extension
Naked POC trade	Beyond the closest HVN	POC + half the VA width

Market Profile Checklist

#	Check	Details	☐
1	Previous day analysis	Identify yesterday's VA, POC, profile shape, day type	☐
2	Key levels marked	VAH, VAL, POC, naked POCs, single prints	☐
3	Open type identified	Classify the open within the first 15-30 minutes	☐
4	IB established	Note IB range and width after the first hour	☐
5	VA relationship	Where did we open relative to yesterday's VA?	☐
6	Profile shape developing	Is today trending, balanced, or distributing?	☐
7	Order flow confirmation	Delta, absorption, and footprint aligned with your thesis?	☐
8	Risk defined	Stop loss beyond the relevant MP level	☐

Common Mistakes

Pitfalls to Avoid

1. Using Market Profile on too low a timeframe Market Profile works best on 30-minute TPOs for intraday, and daily/weekly for swing trading. Using it on 1-minute charts creates noise.

2. Ignoring the developing profile Don't just look at yesterday's completed profile. Watch how TODAY's profile is forming — the dPOC migration and profile shape tell you what's happening in real-time.

3. Treating POC as an exact price The POC is a zone, not a line. Give it room — use the HVN area around POC rather than the exact price.

4. Forgetting context A POC test in a trending market behaves differently than in a ranging market. Always consider the broader market context.

5. Over-relying on the 80% rule The 80% rule works best when combined with other confirmation. On strong trend days, it can fail.

6. Confusing volume profile with market profile Volume Profile shows volume at price. Market Profile shows TIME at price (TPOs). They often align but provide different information.

Combining Market Profile with Other Methods

Market Profile + Volume Spread Analysis

Use MP to identify key price levels (POC, VA)
Use VSA to confirm whether activity at those levels is accumulation or distribution

Market Profile + Wyckoff

MP profile shapes align with Wyckoff phases
Stage 1 (accumulation) creates balance profiles
Stage 2 (markup) creates trend day profiles
Stage 3 (distribution) creates double-distribution profiles

Market Profile + ICT/Smart Money

Use MP's value area to identify institutional "fair value"
ICT liquidity concepts (BSL/SSL) often align with VA extremes
Order blocks frequently form near POC and HVN levels

Practice Exercises

Exercise 1: Profile Building

For 5 consecutive trading days, build a Market Profile by hand (using 30-minute periods). Identify the POC, VA, IB, and profile shape for each day. Then predict the next day's likely behavior based on the profile.

Exercise 2: Open Type Classification

For 10 trading days, classify the open type within the first 30 minutes. Track how accurate the open-type prediction was for the rest of the session.

Exercise 3: The 80% Rule

Find 5 examples where price opened outside the previous day's VA and re-entered it. Track whether the 80% rule held (did price reach the other side of VA?).

Exercise 4: Order Flow Reading

On an intraday chart, identify 3 instances of absorption (high volume, no price movement). What happened next? How long did the level hold?

Exercise 5: Day Type Prediction

At the end of each trading day, classify the day type (Normal, Trend, Double Distribution, Neutral). Then predict what the next day is likely to be. Track your accuracy over 20 sessions.

Summary

Market Profile and Order Flow analysis give you the institutional perspective that most retail traders lack. While the learning curve is steeper than basic chart patterns, the edge it provides is significant.

Key takeaways:

Auction Market Theory is the foundation — markets are auctions seeking fair value
The Value Area (70% of volume/TPOs) represents fair value — price tends to return here
The Initial Balance (first hour) sets the framework for the entire session
Profile shapes tell you the day type and help predict the next session
The 80% Rule is one of the most reliable intraday trading setups
Order Flow (delta, absorption, footprint) confirms what the profile suggests
Combine with other methods — MP provides the levels, other tools provide the entry trigger

Auction Market Theory: The Foundation​

Market Profile Basics​

What Is a TPO (Time Price Opportunity)?​

Key Market Profile Terms​

The Initial Balance​

Profile Shapes & Day Types​

Normal Day (Bell Curve)​

Trend Day​

Double Distribution Day​

P-Shape Profile (Bullish)​

b-Shape Profile (Bearish)​

Value Area Analysis​

The 80% Rule​

Value Area Relationships (Day-to-Day)​

Naked POC and Developing POC​

Naked POC​

Developing POC (dPOC)​

Order Flow Fundamentals​

The Order Book (DOM — Depth of Market)​

Key Order Flow Concepts​

Volume Delta​

Absorption (Institutional Defense)​

Footprint Charts​

Footprint Imbalances​

Trading with Market Profile: Step-by-Step​

Step 1: Pre-Session Preparation​

Step 2: Assess the Open​

Step 3: Monitor the Initial Balance​

Step 4: Track Profile Development​

Step 5: Enter Based on Confluence​

Step 6: Manage Risk​

Market Profile Checklist​

Common Mistakes​

Combining Market Profile with Other Methods​

Market Profile + Volume Spread Analysis​

Market Profile + Wyckoff​

Market Profile + ICT/Smart Money​

Practice Exercises​

Exercise 1: Profile Building​

Exercise 2: Open Type Classification​

Exercise 3: The 80% Rule​

Exercise 4: Order Flow Reading​

Exercise 5: Day Type Prediction​

Summary​