Market Profile is an essential day trading component. Its Value Area High (VAH), Value Area Low (VAL) and Point of Control (POC) define specific areas of support and resistance that can be leveraged into your day trading methodology to increase the precision of your trading entries and also provide you with terrific trading opportunities.In this video we are going to look at the VAH, VAL and POC and see how these support and resistance areas must be respected: long trades into upside resistance and short trades into downside support must be avoided. A break of one of these trend lines, something we do not anticipate but wait to occur with a subsequent retest of this level can provide the day trader with superlative trading opportunities.
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Market Profile Basics:
The VAL and VAH encompass approximately 67.66% of volume at price. This is defined as fair value for the given financial instrument. The POC represents the price where the most volume has crossed at a given price. It acts as a magnate for price and price is drawn to this area (regression to the mean). If you put up higher time frame charts you will see that the VAL and VAH oftentimes correlate with significant trend lines (50-period SMA).
Test of the POC, VAH and VAL:
Traders should never trade into the POC, VAH and VAL. These areas of support and resistance may hold and create a losing trading. You’re goal in day-trading is to avoid (trading into them) risk at all costs.
Re-Test of the POC, VAH and VAL:
When any of these trend lines are broken, traders should look for a retracement and re-test of these areas. If a bounce off these trend lines occur with the appropriate type of Japanese Candle Stick formation utilized as your entry candle a trader can get a successful trade: many of them being very big trades.
Regression to the Mean:
The POC represents the price at which most contracts have been exchanged. This POC acts as a price magnate. Price will always try and regress to this mean price.