TPO (Time Price Opportunity), also known as Market Profile, was developed by Peter Steidlmayer at the Chicago Board of Trade in the 1980s. It is not a squiggly line indicator. It is a way of organizing market data to show the statistical distribution of price over time.
The Core Philosophy: The market is an auction mechanism. Its sole purpose is to find a "Fair Price" where business can be conducted.
- When the market finds a fair price, it stays there (Balance).
- When the market feels price is unfair, it moves (Imbalance).
1. Anatomy of a Profile (Letters)
A TPO chart is built of letters. Each letter represents a 30-minute period (A period, B period, C period, etc.).
- POC (Point of Control): The row with the most letters. This is the price level where the market spent the most time. It is the "Fair Value" of the day.
- Value Area (VA): The range containing 70% of the day's letters.
- Single Prints (Tails): A column of single letters at the top or bottom. This indicates Rejection. Buyers or sellers stepped in aggressively and moved price so fast that it never returned to that level in the same day.
2. The Initial Balance (IB)
The first hour of the trading day (usually periods A and B) is called the Initial Balance.
This sets the tone for the entire session. It represents the initial negotiation between buyers and sellers.
- Narrow IB: The market is undecided. Expect a breakout (Range Extension) later in the day.
- Wide IB: The market has already found a range. Expect a choppy day that stays within the initial boundaries.
3. Day Types (Classifying Behavior)
TPO allows you to categorize the day's psychology just by looking at the shape.
Trend Day (Elongated Profile)
The profile is thin and tall. There is no fat "belly." The market opens at one end and closes at the other.
Action: Do not fade (trade against) this day. The market is searching for value and hasn't found it yet. Only trade with the trend.
Normal Variation Day (The 'b' or 'P' Shape)
The market trends early, finds value, and then ranges for the rest of the day.
Action: Once the "belly" of the profile starts forming, stop looking for trend trades. Switch to Mean Reversion inside the value area.
Neutral Day (D-Shape)
Price extends above and below the opening range but closes in the middle. The profile is fat and centered.
Action: This is pure balance. Buy low, Sell high. Do not chase breakouts; they will fail.
4. Poor Highs and Poor Lows
This is a unique TPO concept.
A "Good High" has a long buying tail (Single Prints). It shows price went up and was violently rejected.
A "Poor High" has no tail. The profile looks flat at the top, like a brick wall. This means price traded there, stopped, but wasn't rejected violently. It implies there is "Unfinished Business" above.
The Trap: Retail traders see a flat top and think "Resistance!" TPO traders see a Poor High and think "Magnet!" Price will usually revisit a Poor High to repair it (break it) in the near future.
Summary
Volume Profile shows you where the money was exchanged. TPO shows you where the time was spent. When you combine them, you see the full picture of the auction.
If price moves away from value (POC) but volume dries up and time is short (Single Prints), the move is a fakeout. If price moves away and starts building a new block of time (New Value), the trend is real.