Trading is a type of Game Theory wherein players win whenever they pick the choice which other players would choose. The reason why price moves up is because more market participants chose to buy that certain tradeable instrument or currency pair. On the other hand, price goes down whenever more traders chose to sell that particular tradeable instrument or forex pair. So, you should profit in a buy trade whenever much of the market chose to buy and sell whenever the market chose to sell. However, there is a catch. Those who made the last move are the ones who would lose. So, even in an uptrend market, the last set of traders who bought that particular forex pair or instrument would usually lose as the market should soon reverse. The same goes with a short trade. Those who were last to make the sell trade in an otherwise downtrend market would usually lose as they are caught as the market reverses back up. So, should we trade ahead of the market. Most profitable traders do not do this. They would usually wait for specific indications when price is about to move in their assumed direction. The sweet spot usually lies at points when the trade direction is confirmed yet at the same time it is still early on the price movement.
However, there are some traders who seem to be able to anticipate where price would make a strong move. It is either as a bounce or as a breakout. These traders typically have access to the “Depth of Market”, wherein they would see the pending orders so they know where the bulk of the orders are. However, as retail traders we usually do not have access to this. Also, the information on the Depth of Market tends to move very fast and would usually mean nothing to those who are not used to it.
There are other ways to predict where price may reverse or breakout. One of the more popular tools for this is the Market Profile.
Market Profile Indicator
Table of Contents
The Market Profile indicator, although technically still an indicator, it is somewhat different to other types of technical indicator. It does not indicate trend direction, momentum, overbought or oversold price levels, or other indications that are usually provided by common technical indicators. The Market Profile on the other hand is somewhat a horizontal volume chart.
Volume is usually presented as histogram bars at the bottom of the chart corresponding each candle, as it is representative of volume on each period. Market Profile on the other hand shows us the volume traded at each price level. This creates bars that are plotted as horizontal bars.
The light violet line is the Point of Control. This is the price point wherein much of the trading volume has occurred. This line could act as a strong support or resistance area. This is because many traders are willing to make a trade at this price point.
The area between the lime and red lines is called the Value Area. This is the area in which 70% of the volume of transactions occurred. The lime line is the upper bound of the Value Area while the red line is the lower bound. These lines can also act as support or resistance levels where price could typically breakout of when there is strong momentum. This is usually because there is usually little resistance beyond the Value Area.
Areas with relatively high volume while being distinct from the Point of Control are called High Volume Nodes. Just as with the Point of Control, these areas can also act as support or resistance levels as there also many traders willing to trade at this price point.
The information given by the Market Profile can be priceless. This is because it tells us at which point price is more likely to breakout with strong momentum even before the actual momentum pulse occurred.
When trading momentum breakouts, what we are looking for is the point wherein there is only little resistance that could push against it. These are areas wherein volume is very low. Some traders would use the lime and red lines as these areas could also act as support or resistance levels. However, we could also observe where the volume tapers down. The area after that is usually an open space where a strong momentum pulse can move through.
We should also look out for High Volume Nodes. Price might breakout with strong momentum, but if the traded will be hitting a High Volume Node, there is still a high chance that price would just bounce back.
Breakouts typically occur at a point beyond the Value Area. In a bullish breakout, it should be above the lime line. In a bearish breakout, it should be below the red line. However, since we are looking at historical charts, these lines would have already moved intraday. As such, we will just be using the density of the volume on our examples.
Bullish Market Profile Momentum Breakout
- Identify the point where the volume on the Market Profile has drastically tapered off above the Value Area.
- Note the resistance levels above this point.
- Wait for a strong momentum breakout above this area.
- Enter a buy order as price starts to breakout with strong momentum above the resistance levels.
- Set the stop loss above the entry candle.
- Option 1: Trail the stop loss based on the low of each candle until stopped out in profit.
- Option 2: Set the take profit target below the next High Volume Node.
Bearish Market Profile Momentum Breakout
- Identify the point where the volume on the Market Profile has drastically tapered off below the Value Area.
- Note the support levels below this point.
- Wait for a strong momentum breakout below this area.
- Enter a sell order as price starts to breakout with strong momentum below the support levels.
- Set the stop loss below the entry candle.
- Option 1: Trail the stop loss based on the high of each candle until stopped out in profit.
- Option 2: Set the take profit target above the next High Volume Node.
Market Profile is probably one of the few technical indicators that can be used as a standalone technical indicator for a strategy. There are many professional traders who are consistently making a lot of money from the forex market and the futures market using Market Profile breakouts.
These examples however are not a complete picture of how the Market Profile breakouts would work. It is only on a live trade setting where you would see how the Market Profile style of trading works. It is not perfect, but it sure does work as many traders have made a fortune out of using a Market Profile indicator.
Forex Trading Strategies Installation Instructions
Market Profile Momentum Breakout Forex Trading Strategy – MT5 is a combination of Metatrader 5 (MT5) indicator(s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
Market Profile Momentum Breakout Forex Trading Strategy – MT5 provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust this strategy accordingly.
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How to install Market Profile Momentum Breakout Forex Trading Strategy – MT5?
- Download Market Profile Momentum Breakout Forex Trading Strategy – MT5.zip
- *Copy mq5 and ex5 files to your Metatrader Directory / experts / indicators /
- Copy tpl file (Template) to your Metatrader Directory / templates /
- Start or restart your Metatrader Client
- Select Chart and Timeframe where you want to test your forex strategy
- Right click on your trading chart and hover on “Template”
- Move right to select Market Profile Momentum Breakout Forex Trading Strategy – MT5
- You will see Market Profile Momentum Breakout Forex Trading Strategy – MT5 is available on your Chart
*Note: Not all forex strategies come with mq5/ex5 files. Some templates are already integrated with the MT5 Indicators from the MetaTrader Platform.
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