Market Profile and trends
by Thomas Drinka, Ph.D. and Robert L. McNutt
The key to market opportunity is knowing when current market price diverges from value and being
able to judge whether price will move to value or value to price. A divergence of price and value can
occur during the trading session-as well as over many days-and may generate a trend.
Trends can be used to evaluate the speed at which the market is moving through time and, knowing the
market's speed, even a trader far from the pits can judge the amount of response time for trading.
There are three types of trends, each defined by their timespan. As the market-in attempting to facilitate
trade-seeks the activity of market participants through the use of price probes, the current price may
diverge from value. Then, one of two occurrences results: Either market participants reject the divergent
price and price returns to value or market participants accept the price as fair and value is generated at
new price levels by attracting volume.
In the first case, the divergence results in a price trend-a price movement that occurs during only one
half-hour time period. In the second case, the divergence results in a value trend-a price movement that
occurs during two half-hour time periods. As price moves through time and attracts volume, the price
movement slows and this suggests a continuation of the trend.