Market Profile – What is the difference?
Occasionally I am asked what is the difference between Market Profile and Technical Analysis. To answer this question, I would like to refer to a few sentences of the father of the market profile, Peter Steidlmayr.
As a CBOT (Chicago Board of Trade) floor trader frustrated with indicators, he began to visually recreate Benjamin Graham’s basic ideas about value investing using a bell curve chart back in the 1970s. The following sentences from his work “Trading with the Market Profile” describe the principles of the Market Profile.
“Market Profile is a form of technical analysis because the information derived from it is mechanical in nature; it is based on strict and objective parameters and definitions.
The first difference between ordinary technical analysis and Market Profile is that Market Profile uses the evolving market, not past market history, as its database.
Secondly, Market Profile is more of an internal source of information of the present, unlike other technical tools such as moving averages and relative strength, which are external to the market. Market Profile attempts to replicate what a trader standing on the floor sees so that market activity can be read as it unfolds.
A third difference between traditional technical analysis and Market Profile is that traditional technical analysis tries to predict the future based on the past. Market Profile attempts to determine the underlying conditions for the current market movement to continue or change.”
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