So What Is The Market Doing Now?

ant · #11 11-08-2006, 07:03 PM

In short, a p-shaped profile is typically seen in an uptrend and a b-shaped profile is typically seen in a downtrend.

According to Steidlmayer, the four steps of market activity are:

Vertical movement up or down - the market establishes a series of prices in one direction (i.e., Trending or Vertical Development).
The market finds a price that stops the directional movement. Essentially. the market moves far enough where it shuts off buying or selling.
The market begins to move sideways around the stopping price. That is, the market develops one end of the distribution. This is where the market forms a p-shaped profile in an uptrend or a b-shaped profile in a downtrend.
The market moves to efficiency and begins to form a bell-shaped curve over the entire range of step 1. Essentially, the market is filling in the 'p' or 'b' shaped formation (i.e., Balancing or Horizontal Development).

The markets are in a constant cycle moving from balance to imbalance. I developed my trading plan around these four steps of market development and adjust my trading strategy accordingly. I think it is important for all traders to start their market analysis by determining the market condition.

Steidlmayer also refers to a concept called "Minus Development", which occurs when the four steps do not occur in sequence or the market skips a step. For example, a market can start an uptrend, move far enough to shut off buying, and then balance around the stopping point forming a p-shaped profile. Step 4 may not occur because the market continues the uptrend. If you review the trading in the YM during the month of October, you'll see that this is what happened as it continued the uptrend. See the chart below.

Having said that, I believe what TinGull is referring to is that the YM is forming another p-shaped profile as seen in the chart below. If the YM trades between the two nodes shown in the profile, then it will complete its p-shaped profile. The question then becomes, will the YM continue its uptrend (step 1) as it has been doing or will it move to step 4 and fill out a larger distribution. TinGull, did I represent your point accurately?

So What Is The Market Doing Now?-ym-p.gif

Comments/corrections appreciated.

namstrader · #12 11-08-2006, 07:27 PM

thanks ant, I wish you posted more often on the MP, I am a convert thanks to you with your sharing of the imported analysis techique for TS. Big Time thank you!

*Soultrader* · #13 11-09-2006, 12:59 AM

Great explanation ant. Several thoughts.... Dalton mentioned a "P" profile usually forms after a downtrend. Basically a P profile occurs in an uptrend but is followed from a downtrend. (had to hit the books pg. 259)

He further mentions old business have finished short covering and new business is not entering the market due to high prices. Hence he refers to it as a "poor buyer continuation."

The one thing I dont understand is a P formation that develops with lower value placement. Aren't P formation valid only when they develop with higher value placement than the previous day? (I just took a look at my charts and noticed the YM no longer has a P formation. But still an interesting question)

ant · #14 11-09-2006, 08:22 PM

namstrader, thank you for the kind words. I'm glad you find my posts helpful.

ant · #15 11-09-2006, 08:24 PM

Soultrader, thanks for the question.

On page 259 of Mind over Markets, Dalton described a short covering scenario (from 1/26/89 to 2/1/89) where Soybeans were in a downtrend, but then rallied due to short covering. During this retracement, Soybeans formed a "P" formation when the buying auction stalled. It then started to head down again. See the chart below. The area within the rectangle is the short covering rally that stalled. If the individual days are aggregated together, the "P" formation becomes easier to visualize. So on the shorter-term timeframe, Soybeans were in an uptrend. On the longer-term timeframe, Soybeans were in a downtrend. Timeframes and market context are very important in my analysis.

As the "P" is forming, the market is basically balancing at one end of the distribution so I would expect value area placement to be higher, lower or overlapping. The ES chart below is an example of this. Note the "P" formation from 11/06 to 11/09 and notice that the value are placement for the last three days was higher and lower (when compared to the previous day).