Crash course into MP

[darthtrader]

Honestly, I find little value in any discussion that is simply ripping apart an established trading tool without at least argueing as to why another technique is better. Anyone can take the position that markets are purely random and then argue against virtually any trading tool available. There is zero value in such a discussion though outside of academic nonsense.
We really should adopt a policy here against "niederhofferism" and "elitetraderism". I love Victor Niederhoffer's stuff but most his stuff is just ripping down techniques without giving a better tool to replace what was ripped down. While it makes for an interesting book/read, it makes for very pointless circular discussions on the web.

[jperl]

	Quote:	AgeKay
	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.

Perhaps this is the place for me to jump in here and clarify some concepts which are being used in some cases with confusion.

Standard Deviation (SD) is a well defined statistical concept for most distributions.
IT HAS NOTHING TO DO WITH WHETHER THE DISTRIBUTION IS NORMAL OR NOT. You can always define and therefore compute the standard deviation of a given set of price data. If you compute it with respect to the VWAP, then the SD so computed will be the smallest SD for the given set of data as I have pointed out in "Trading with Market Statistics. IV".

Where there is confusion is trying to relate the SD to some percentage of the days price data. It will be 68.2% of the data provided the price data follows a Normal distribution. On most days this is not the case. As Sparrow has pointed out in this thread, you then have to use Chebyshev's inequality to determine the percentages.

That being said, what can you do with this information. Well if you are a Market Profiler, you can always define the 70% data points and call this the value area and then develop a trading strategy around this just as long as you realize that on most days this 70% value is not a standard deviation.

My preference of course has been to develop trading strategies based on the VWAP and it's SD's. The advantage of this is the SD is an exact measure of market volatility. It tells you how far you can expect the price action to move from any given price point. It does not tell you of course which way that will be. I have pointed out however that the SD points appear to be places where price action tends to stall or hold up and I have called these HUP points, places where the market tends to have some indecision as to whether to reverse or continue on in the same direction.

[januson]

	Quote:	Hlm
	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

Too bad for me I started this thread to learn something

[Soultrader]

Heres a ES chart from Friday. Semi-automated trade setups using price relationship to volume and MP resistance levels. The 1299 mark was VAL from Thursday. I get 3 signals indicating weakness at/near the VAL pivot.

First we are seeing price open above Thursdays high, rejected, and tank. Now the retracement tries to break back into Thursdays value area. Then seeing bars of weakness indicates price is not ready to go back above into Thursdays value area. So planning shorts around this level is a clear defined strategy using price action and market profile concepts.

[jjthetrader]

	Quote:	Soultrader
	Heres a ES chart from Friday. Semi-automated trade setups using price relationship to volume and MP resistance levels. The 1299 mark was VAL from Thursday. I get 3 signals indicating weakness at/near the VAL pivot. First we are seeing price open above Thursdays high, rejected, and tank. Now the retracement tries to break back into Thursdays value area. Then seeing bars of weakness indicates price is not ready to go back above into Thursdays value area. So planning shorts around this level is a clear defined strategy using price action and market profile concepts.

Sorry to be off topic here but James what's up with your 10:55 bars volume? That can't be correct can it? Mine does not match that at all.

[mister ed]

	Quote:	januson
	Too bad for me I started this thread to learn something

I want to second your thoughts here januson, I was learning a heap from this thread (for example, Sparrow brought up Chebyshev's Inequality, which cleared up some of my doubts about the use of 1 standard deviation as the value area). It is a real shame this thread has run out of steam. It is understandable, one poster who seems to have an axe to grind disrupted the thread so much that the valuable contributions just dried up.

I was reading a post on another forum a couple of days ago and had a laugh at it, this is what it said:

4 rules for a ** thread

1) Split hairs to show everyone that you know more than the other poster

2) Contradict others, for the sake of contradicting - be a 'master debater'

3) Boast that you make more than everyone else, when you're really losing money, and use the grin or shades smily

4) Make sure the thread goes nowhere

Like I said, I thought it was funny, but when it is happening to a thread you consider valuable its not funny any more!

I don't know if this thread can be brought back to life ... I hope it can.

Can I ask a couple of questions that maybe can kick-start the thread again.

Why is the first hour of trading considered so important (the initial balance)? Why is it the first hour? Has anyone come up with ideas for what characterisitics might define an 'initial balance' better?

Also, Hlm, you mentioned doing some work refining MP. Can you expand on what you are doing (only as much as you are comfortable with obviously, I don't want to pry into your private trading)?

I hope we can resuscitate this thread!

[jjthetrader]

	Quote:	mister ed
	Can I ask a couple of questions that maybe can kick-start the thread again. Why is the first hour of trading considered so important (the initial balance)? Why is it the first hour? Has anyone come up with ideas for what characterisitics might define an 'initial balance' better? I hope we can resuscitate this thread!

Hi Mister Ed, I'm no expert in MP and I'm not saying I'm right but here's how I look at initial balance. To me it's range and activity gives a good indication of sentiment. A wide range shows a lot of activity and a lot of 'steam' being used up within the first hour. So a future break out of this range is less likely since a lot of energy has already been used up. A narrow range shows a bit of consolidating and 'steam' being built up for a push later on out of that range.

Why the first hour? Well, I know some people that just use the first half hour. Those that can move the market are able to conduct their large size transactions within the volatility at this time of the day. What position they are taking around this time will most likely set the direction or action for the day. This is just how I view it.

[Hlm]

	Quote:	mister ed
	Why is the first hour of trading considered so important (the initial balance)? Why is it the first hour? Has anyone come up with ideas for what characterisitics might define an 'initial balance' better?

I agree with what jjthetrader said. Simply put...this is when volume comes in (repositioning) to confirm or deny the previous perceived fair value. This is why many times when the market opens outside the Value Area (e.g EOD run or overnight move) it will try to (if close enough) reenter/test the Value Area on open. When we open inside a Value Area price will often test outside looking for interest. How the market reacts to these tests will usually create a trend or confirm a two sided consolidation period. On completion of repositioning volume tends to dry up. Depending on the outcome of these tests the activity usually lasts from 30 minutes to a couple of hours. I personally don't use any hard value. I let the market activity around these areas show me when it's complete.

	Quote:	mister ed
	Also, Hlm, you mentioned doing some work refining MP. Can you expand on what you are doing (only as much as you are comfortable with obviously, I don't want to pry into your private trading)?

Much of my research and development has been on TPO and Volume Market Profile started not at time related spots (e.g. Daily), but at swing highs and lows. I analyze not only the differences between TPO and Volume but how all of them converge to either cross or parallel each other.

[alleyb]

It might interest some to know that the first hour of trading was established a very long time ago before Pete even came up with the concept of IB by UK fund managers especially in the Gilt market which used to have the local hours of trading from 10-5.

They would await the usual elevenses sherry and biscuits with the Bank of England visitation that occurred every morning but at a different discount house and susbsequently Bank/Broker-Dealer. Many things would be discussed and from this the term nod and wink came about for the The Old Lady as The Bank was referred to would sometimes suggest that a particular hous position may need re-thinking.
The Fund managers therefore awaitied the first hour for this visit before making trading decisions.
There are other colourful stories about the Government Broker for example that when a Tap issue (New borrowing) was to be announced would walk into the Stock Exchange and if there was a slip of paper showing from his suit ticket pocket then there was going to be an announcement and the boys at the Gilt pitches would have time to adjust positions before the Goverment Broker arrived at the pitch where he would declare the details of the Tap

[alleyb]

The point about the the first hour of trading is amongst others:
To establish early direction from the flow of orders generated that then indicates the movement of value in relation to prior levels. The concept is that the longer term trader may try to influence (or maybe be influenced) by the the value area movement thereby generating trade. Volume therefore dictates the degree of force or power behind the movement.
The need to trade is a powerful argument for many as the only guys who need to trade are those off-side, those who are obliged to follow some form of benchmark, those who need to hedge up some other position whether because they are offside on that or wish to lock in some form of arbitrage. The IB therefore serves many purposes in forcing the maximum number of participants into the trade all with different time horizons and wishes, wants and of course needs to trade. Thereby the short term guy / day trader can try to nickel and dime some form of advantage from the long term guy / institution by correctly assessing the ebb and flow and the IB helps establish short term micro trend.
Pete Steidlmayer wrote (and I precis for brevity sake) that in the commodity markets it was necessary to operate early IE at the open due the small number of hours traded but in Stock Indices one would have to await as much the first 3.5-4 hours to establish the ture IB