Sixpart Study Guide to Market Profile by CBOT

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Sixpart Study Guide to Market Profile by CBOT

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Sixpart Study Guide to Market Profile by CBOT

How to understand about technical analysis: Learn about technical analysis

In finance, technical analysis is an analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the same tools of technical analysis. Which, being an aspect of active management, stands in contradiction to much of modern portfolio theory. The efficacy of both technical and fundamental analysis is disputed by the efficient-market hypothesis. Which states that stock market prices are essentially unpredictable.

The material in this six-part Study Guide evolved from a seminar program developed for Chicago Board of Trade members. The emphasis is on understanding the Market Profile ®concept–and not on trading strategies–because we found that when the CBOT traders grasped the concept, they had no trouble developing strategies consistent with their own style of trading.

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Part I discusses how to read the daily Market Profile ®graphic.

*Part II explains how longer-term trends can be monitored with daily data.

Part III discusses why the fundamental perception of value is at the heart of every market decision.

*Part IV shows how daily and long-term market activity distributes over time.

Part V tells you how to combine market activity. And the perception of value in order to analyze a developing trading session.

*Part VI analyzes Liquidity Data Bank ®volume in order to gauge strength or weakness in the market.

We have added a glossary of Market Profile terms and an index to the original text in order to make this updated version of the Home Study Guide more useful. At the same time, we are retaining the early steps in Peter Steidlmayer’s breakthrough research discussed in Parts I and II so that you can see. The logical progression in the development of Market Profile analysis–from its beginning in a single session to its use in global markets.

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Although the terms “day time frame trader” and “other time frame trader” may be dated, the way the two groups interact isn ‘t. Traders and investors are still basically either short- or long-term market participants. And their behavior is still determined by their view of value. And value is still at the heart of market activity. Therefore, knowing how each group impacts activity in a single session makes it much easier to understand how they distribute beans. Bonds, or corn, for instance, over longer periods of time.

Why?

Because it is the interaction between short- and long-term market participants that distributes trading volume in a bell-shaped curve. The back-and-forth movement reflects the continual tug-ofwar between the “forward price influence” of long-term traders. And the “backward price influence” of short-term market participants. We are also keeping the original examples because the vertical and horizontal Market Profile organization is as relevant in 1995 as it was in 1984–even though global markets have outgrown the single session.

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The same organizing principles that made the Profile graphic a realistic market model of a single session in the 1980s provide a realistic model now of continuous, 24-hour activity. Since the organization of Market Profile data is based on a natural construct. The format simply expands to encompass global activity. We show you how to relate the format to the distribution process in global markets in Parts IV, V, and VI.