Crash course into MP

[AgeKay]

	Quote:	darthtrader
	As opposed to what? Purely mechanical trading? The power of MP is that it is not an "objective" setup that will fail by the time the book has been published.

As opposed to for example what I had mentioned in my first post: Trading the VWAP. I don't think you should use anything that comes from a book in your trading. Also mechanical trading and objective trading is not the same. Mechanical trading refers to the execution of a trading strategy, which has to be objective. You can also trade objective strategies discretionary. The thing is that you have something definite for orientation instead of the usual subjective "if it _looks like_ it's gonna do this, then maybe if it's _close_ to this, it could, maybe, maybe not, throw a dice, etc." How does a failure or breakout of an "balance area" look like. Does one trade above/below the "balance area" suffice? How much does price have to move exactly? Or is this also a gut feeling?

[darthtrader]

	Quote:	AgeKay
	Or is this also a gut feeling?

No, not gut feeling. I'm simply pointing out that you are not viewing the utility of MP correctly. Its just a way to frame price action, you have to then add something else to the recipe for actual trade locations. Like James is using CCI in his videos, a tick hook at the top of a balance area is pretty good trade to fade, cumulative tick divergence at the top of a balance area after a false breakout, cumulative TICK expansion looking for a breakout, VWAP/Skew will be better at a point where the market has to make a decision as opposed to in the middle of a range, candle patterns at the top/bottom of a range fading or taking a breakout.
I just think people get way too hung up on the value area of MP. To me its pretty useless, all the good stuff are the other MP concepts and the way they frame price action and then overlay more specific stuff on top of those concepts.

[januson]

Interesting
As my newbie post does declare.. I know nothing about MP, which was my first motive for asking.

I have alot of strange thoughts about the market and one that keeps pushing me is; How long does a specific price dominant the market? Is't based at volume or time or just market sentiment, well I don't know, but one thing I do know and have experienced alot of times is that: If a market maker want the stock price to go higher, so it goes. I simply cannot understand why a market is moving up, when everything says it should be down.

I have played around with Footprint from MarketDelta and yeahh yeahh, quite amazing tool, but does it beat the old fashioned pivots, volumes, candles and tapeticker? Or is't only meant te be a subsidiary to it?
Shouldn't the knowledged trader know how to interpret these signals, does he really need another tool?
I know what I would choose and that would be the skeleton way.... as much as nothing to get to the edge.

The edge is YOURSELF and has nothing to do with a fancy tool, the TOOL is yourself and your success depends of how well you EDGE THE TOOL

My point is that nothing can be predicted and all comes along when times go by.. certainly there can be market trends - intraday, day or week etc., but when all boils down the price is determined by the market and not by a prediction where and how the market should interpret the previous day in todays trading ie. Market Profile.

It would be a nice thought though..... but if the market was that and if the market was able to let itself to be described simplyfied as this, then the market would die a very non-heroic death IMHO.

I've seen selling to buyers on and on for a whole day, but still the price has been increasing.. I've seen buying and buying but still the price has been downtrending. For how peculiarly it may seems I've never seen a price evolve in another way than the trend. huh...

My point is that... why choose yet another tool to describe the market or better... why choose a tool to let yourself into a conception that the market needs a description!

[TinGull]

Market Profile is a thought process more than it is a strategy. Arbitrary? hardly. Why 70%? 68.2% is one standard deviation, something that's hardly arbitrary. Some trading programs use that hard number, most round to 70% because it's "easier".

MP allows one to see, graphically, what the market is telling about itself. A trader who understands and respects Market Profile is better able to grasp what the market is saying over a broader time frame. Does VWAP and its "standard deviation" bands (not so arbitrary when it's related to your VWAP, is it) have it's place in folks' trading? Absolutely it does. One could use Market Profile to understand likely possibilities for price direction and then drill down to use VWAP bands to actually take the trades. I think that'd be a fine way to look at it.

As I started saying at the beginning...MP is a thought process more than a strategy.

[AgeKay]

	Quote:	januson
	I have alot of strange thoughts about the market and one that keeps pushing me is; How long does a specific price dominant the market? Is't based at volume or time or just market sentiment, well I don't know, but one thing I do know and have experienced alot of times is that: If a market maker want the stock price to go higher, so it goes. I simply cannot understand why a market is moving up, when everything says it should be down.

I don't know how specialists in stock markets make a market (maybe somebody could enlighten me?), but I know how it works in limit order futures markets (most large markets) where there are no official market makers and it works like this: Price stays where it is as long as there is enough liquidity. Liquidity is simply limit orders on each side. If there are no liquidity (limit orders) at one side, then price moves in that direction. There are 2 ways how liquidity can go to zero. A) limit orders are pulled or there aren't much in the first place B) market orders that demand liquidity (because they are matched with limit orders), you could also call this volume. So there you have it, that's it. A) explains why there is so much volatility around news time, because there is simply nobody willing to place limit orders because of the increased risk. One time I could literally see in the DOM that there was a news announcement going to be even though I forgot to check the economic calendar, because all of the sudden liquidity dried up. B) is what you would see on MarketDelta, but it doesn't give you the whole picture since you could have a lot of volume in one direction and the price could still be moving in the other direction just because there are enough limit orders to keep the price from moving in that direction.

	Quote:	TinGull
	Market Profile is a thought process more than it is a strategy. Arbitrary? hardly. Why 70%? 68.2% is one standard deviation, something that's hardly arbitrary.[...]Does VWAP and its "standard deviation" bands (not so arbitrary when it's related to your VWAP, is it) have it's place in folks' trading?

Standard Deviation is another thing that has no place in trading. Not even when used with VWAP. Standard Deviation describes the expected deviation of a normal distribution, but there is nothing in trading that follows a normal distribution, be it price changes or volume. It's another idea that somebody has just taken because it has a meaning in another domain, but is has no meaning in trading. Even if it did, it treats price changes up and down as they were equal, which they are not. You have to really understand the tools you're using to realize that they don't make much sense in trading. That's the same thing why I don't think much of MP. But that's ok, use it, if you like it, I am not going to leave another comment in this thread regarding MP.

[TinGull]

Yea, I can't make sense of what you mean by it having no place in trading. Price always has a perceived "value"...that's why there is trade. One person feels it's valuable to own, another person feels it's not valuable anymore...they are always feeling that price has some "value". Otherwise, why put your money into something?

Every day there's a price that an issue spends more time at than others. Why? Because people feel that price to be the value of the day for that issue. At the end of the day is when you've got the perceived "value" of that instrument and then can see the distribution around that "value". A price change is a price change, whether it be up or down. The Market Profile is there to show you where the price change happened and when it did in correlation to other price changes throughout the day.

I do use it, and many other professionals use it, with success. If you can't find the usefulness in it, that's fine. I said once and will again, that's the beauty of trading! Everyone can see things differently and achieve the same monetary success.

[thrunner]

	Quote:	AgeKay
	Standard Deviation is another thing that has no place in trading. ... I am not going to leave another comment in this thread regarding MP.

A little extreme, but thanks.

[Hlm]

This is extremely hilarious. After the first part of this thread I was planning to write out a detailed explanation with examples and illustrations, but this thread has taken a turn. How can one think they've studied TPO MP enough and have no idea where the 70% comes from? It's just simple solid statistics. Also, to say that standard deviation has no place in the market, wow. I do agree that it depends on the distribution, but MP shows you the distribution so you can act accordingly. I take it that you just use VWAP with no StdDev? I guess when you told the OP to check out Jperls threads you should have told him to ignore the second half of them as well since they deal with StdDev's. I will leave it at this...I believe TPO MP and Volume MP can BOTH be extremely helpful to a trader. I personally use both and have been very successful with them.

P.S. I give MP credit for getting me in and KEEPING me in for the majority of the move down on Friday. Most of my "big winner" trades come from MP areas/setups.

EDIT:
If you don't plan to post another comment on this thread you could always start a new thread to discuss the problems you see with MP and Standard Deviations and/or what you find useful

[AgeKay]

	Quote:	Hlm
	If you don't plan to post another comment on this thread you could always start a new thread to discuss the problems you see with MP and Standard Deviations and/or what you find useful

Sorry, you're basically coercing me to reply, so here it goes:

	Quote:	TinGull
	Yea, I can't make sense of what you mean by it having no place in trading. Price always has a perceived "value"...that's why there is trade. One person feels it's valuable to own, another person feels it's not valuable anymore...they are always feeling that price has some "value". Otherwise, why put your money into something?

The value you're talking about here has nothing to do with the term "value" in MP. You're talking about value in general as it might be perceived by different people.

	Quote:	TinGull
	Every day there's a price that an issue spends more time at than others. Why? Because people feel that price to be the value of the day for that issue. At the end of the day is when you've got the perceived "value" of that instrument and then can see the distribution around that "value".

I explained price discovery in futures markets that explains why a price stay's where it's at. The price at the end of the day is there because that's where people at the end of the trading day moved it. The price move in the last hour can undo an entire day's price move. Not because the perception of value has changed, because there are so liquidity at that time. I'll give you an example of the Dow Jones Euro Stoxx 50 Futures (FESX) because that's what I am trading: You'll need at least 500 orders to move the price in the afternoon, sometimes 2000 or more. In the evening you usually need 200, sometimes 500 orders. The volume of the 4 hours after 18:00 is less than the volume of 17:30-18:00, but it can still move as much or even more than during the entire day in the evening. So is that the 'accepted value' at the end of the day which was caused by 5% of the previous volume?

	Quote:	TinGull
	A price change is a price change, whether it be up or down.

Not when used with Standard Deviation. When the price is moving up quickly all day, the Standard Deviation is huge even though it has never really traded much down. So how accurate is it in determining the expected move to the down side?

	Quote:	TinGull
	I do use it, and many other professionals use it, with success. If you can't find the usefulness in it, that's fine. I said once and will again, that's the beauty of trading! Everyone can see things differently and achieve the same monetary success.

That doesn't mean it has any value. There are successful professionals that look at how elefants move in the morning or look at something other completely unrelated with the market place like astrology and base their decisions on that. And it has nothing to do with being successful at trading. These guys are just good at managing risk, but I don't want to get into that.

	Quote:	Hlm
	How can one think they've studied TPO MP enough and have no idea where the 70% comes from? It's just simple solid statistics. Also, to say that standard deviation has no place in the market, wow.

You're just stating your opinion and not providing any explanation. Please explain. I explained why the 'value area' in MP is arbitrarily defined and why the standard deviation makes no sense. Can you back up your disagreement with any reason? And if so, what is wrong what is said? Please be specific.

Btw, you sound like you came straight from EliteTrader. I like this forum because people tend to be reasonable here unlike on ET.

Quote:

Hlm