Market Profile Value Areas

As defined by Dalton and Jones in the book Mind over Markets: “The area where 70% of the day’s business is conducted”

Based on yesterdays trading 70% of the volume traded between 1169.50 and 1162.50. When markets are “orderly” these Value Areas are an important gauge of the market. When the market is trading inside the area on the following day, the sentiment that created this area (or range) hasn’t changed. The market simply rotates from one side to the other. Lacking any other time frame traders stepping in, either long or short, the market will simply continue to rotate. In other words, both buyers and sellers found value in this range.

When you have a “disorderly market” like last Thursday, you get a huge Value Area like 57.75 handles!! as compared to a typical market like yesterday where the Value Area was 7 handles. Huge Value Area days wreak havoc on my 8 day moving average and using the Value Area high or Value Area low as support or resistance is worthless.

Today however was a good example of the “value” of the Value Area that is created in a typical trading day. The market opened up inside the Value Area at 66.50 with aggressive Paper sellers. Locals had “attitude” and bought every scrap. The market traded down to 61.75 as the locals were loading up on aggressive selling. The low was just a few ticks from the Value Area low.

Locals were long and initial Paper sellers were done. Without another wave of heavy Paper sellers the market, in the hands of the locals on the bid and the natural rotation back through the Value Area range, rallied. More Paper sellers came in one at a time and with rising prices the locals kept buying. The locals will add to their position and absorb the Paper selling as long as the prices are rising and its one house (one trader), at a time. They will cover and reverse if the next wave of Paper selling is from several houses. If several houses all start selling this means traders in different areas of the world are all seeing the same thing and betting on (in this case) lower prices. Value Areas won’t hold when these traders who are thinking on a longer term basis, believe prices are too high (or low).

The price traded up to and through the Value Area high by 2.5 handles. This didn’t attract the buyers the locals were looking for to lay off their longs. This market wanted to trade lower and once the afternoon session kicked in that’s exactly what it did trading right through the Value Area low of 1162.50 and even yesterdays OR.

The Vix at 26.82 suggests continued volatility so based on this afternoon’s action I am looking for some more downside activity. It will probably all come overnight while I’m dreaming about cold beer, warm beaches and hot bikinis.


Tim Mack