[JohnE]

This is my first or second post so a hearty "Thank you" for a fantastic forum. So much great information here.

My question is regarding the "correct" method for calculating the Value area numbers specifically for the Emini S&P... Some days they are quite different. I'm trying to eliminate lines on my screen and not add more price levels.

Does anyone know of any studies that have compared the two methods to determine which numbers are "best " to use? Volume or TPO's.....which do most feel are watched by the "pro's"......thanks for any guidance/direction you may offer....

JE

[omni2006]

Originally Posted by JohnE »

This is my first or second post so a hearty "Thank you" for a fantastic forum. So much great information here.

My question is regarding the "correct" method for calculating the Value area numbers specifically for the Emini S&P... Some days they are quite different. I'm trying to eliminate lines on my screen and not add more price levels.

Does anyone know of any studies that have compared the two methods to determine which numbers are "best " to use? Volume or TPO's.....which do most feel are watched by the "pro's"......thanks for any guidance/direction you may offer....

JE

Hi John and welcome to the forum

regarding studies on Vol vs. TPO POCs, i did see a study a few years back that suggested the calculation was generally of marginal consequence. Usually, volume, ticks (trades), and TPOs line up pretty closely.

here is my answer: it depends. i am sure it will not be a popular response, but there it is.

context is more important to me than mathematical specifics. btw, i don't think you could have picked a better day to post your question. today our Volume POC was 12pts lower than our TPO based POC. so which is it? when we take a contextual look at the profile here's what stands out to me: an elongated profile and no prominent POC, regardless of calculation method.

something else that stands out to me is what didn't happen. ideally, volume will correspond to time, so that both POC's would be within the same general proximity. that didn't happen today. the unexpected happened. we spent more time than volume at our TPO POC. that means even though we were in that area for a while today not a lot of business was actually taking place. and, late in the day, we did a lot of business much lower.

i know that doesn't give you a very tidy response, but i really think taking into account market context trumps any level or area. for days like today, it just may be that neither POC is very important. but it is useful to be aware of both areas and the circumstances surrounding each.

i hope this helps.

[NoSquigglyLines]

Don't want to add confusion but it's all relevant I think and adds weight to the 'it depends' answer.

It also depends (at least for me) how you configure your Market Profile software. I've thrown together a quick image to demonstrate this. I often look at MP in a 1 pt scale for the ES, but of course the ES moves in 0.25 increments. The chart shows the 0.25pt scale on the left and the 1pt scale on the right ... note the difference.

Which is correct? No idea. Omni I see you are doing the DLC course so are probably much more qualified than I to answer that. One could argue that using 0.25 increments will be more accurate and thus is 'correct'. If I was doing a big merge I might be inclined to do it on a 0.25 point scale.

However, I think at the end of the day it doesn't really matter. What's important, as Omni pointed out, is the context. Most likely you would note both High Volume nodes in your analysis anyway. We've also had a number of overlapping days in a row, so many would be inclined to merge those into a composite profile.

IMO, It's all about the context.

Edit: FWIW, I tend to pay more attention to volume.

Disclaimer: I'm not an expert, only my opinion. Still very much a developing new trader.

[JohnE]

I'm certainly no math wizard but doesn't those 4PM (est) cash close volume spikes mess up the volume profiles each day? thanks for the responses....

JE

[TraderBG]

I myself don't use arbitrary numbers for support and resistance but from what I've observed the TPO VAH and VAL will usually produce a bounce while the volume POC usually holds price and chops around more so than the TPO POC.

But as others have mentioned, it's all about context as to whether the bounce off the TPO VAH and VAL will actually produce a tradeable reversal. If one is not reading the market correctly one could easily get drawn into the temporary bounce the VA levels cause only to get ran over when the auction resumes its course.

Personally, I find the current day's levels of more use in my trading but not for support and resistance.

Hope this helps.

[darthtrader3.1beta]

TPOs were an obvious fudge for volume by Steidlmayer because that kind of volume information was not realistic at the time. The only good thing left with TPOs IMO is that they are better still on very long profiles if you don't have more granular volume data. IE, I would rather look at the price range of 30 minute bar data on a 60 day profile than a volume profile that only takes one 30 minute snapshot of volume on OHLC data, the TPO is just smoother in that case.
I do agree though that there is no reason to take an arbitrary number at this point like "value area" whatever. If you look at enough profiles and mark off the value high and low by hand(easy once you see enough profiles) then TPO vs volume becomes pretty much the same because of how you will use that information(ie. to find ranges to trade against)

[JohnE]

Omni, I know somewhere it was mentioned that you are currently involved in Daltons training so I'll aim this question at you but obviously it is open for everyone.

In Mind over Markets Dalton writes at great length of the open price in relation to the previous days Value area and how to measure/estimate ranges for the day. He also writes about double TPO acceptance above/below value. It seems that having the two key ways to get at a value area ( TPO's and Volume) adds even more subjectivity to Market profile and the specific topics I just mentioned. I was wondering if those concepts are still valid or does Dalton not address the days open anymore?

We may have an open outside of Value using one method but inside value using the other for example. Perhaps Dalton can elaborate for us on this and you can report back. Thank you.

JE

[omni2006]

Originally Posted by JohnE »

Omni, I know somewhere it was mentioned that you are currently involved in Daltons training so I'll aim this question at you but obviously it is open for everyone.

correct, John, i'm currently enrolled in DLC Profiles' CL/CES course. i'll put my $0.02 towards your questions and, as you noted, leave it open for others to chime in on as well.

Originally Posted by JohnE »

In Mind over Markets Dalton writes at great length of the open price in relation to the previous days Value area and how to measure/estimate ranges for the day. He also writes about double TPO acceptance above/below value. It seems that having the two key ways to get at a value area ( TPO's and Volume) adds even more subjectivity to Market profile and the specific topics I just mentioned. I was wondering if those concepts are still valid or does Dalton not address the days open anymore?

btw, good questions John. the shortest answer will be this: yes, subjectivity is a constant in discretionary trading, be it through a Market Profile lens or any other perspective. that being said, Dalton still uses those data points in his analysis and teachings. however, he makes a concerted effort to frame concrete levels in a more abstract view. it's too easy for a trader to find a level, any level, and fall in love with it, completely disregarding any discernible context. if i have a range estimate and multiple TPOs, yet the market blows right through my levels, Jim doesn't want me overweighing old information. the market has provided me new information and deemed my previous information as currently irrelevant. and, of course, even that could change with new information. it often comes down to monitoring expectations. if something unexpected happens, that is powerful information that i need to incoporate into my market view.

Originally Posted by JohnE »

We may have an open outside of Value using one method but inside value using the other for example. Perhaps Dalton can elaborate for us on this and you can report back. Thank you.

interestingly, Jim discussed something along these lines a week or so ago. and, without divulging proprietary course material, the answer here is context. a TPO based Value Area is more visually derived (i.e. TPOs above/below POC) than a Volume based Value Area, so it is easiest to use TPOs for visual reference. but, again, if volume paints a different picture, that information needs to be processed and evaluated. the expected is that volume and TPOs closely resemble each other.

regardless of any method to calculate anything, Jim is never advocates buying/selling any level or price without putting things into context. understandably, traders want to be able to distill everything down to mathematical recipes, but that's not what Jim or DLC or Market Profile is about. i've come to accept that there is more art than science to this game. and, since there are a lot of very technical discussions within our forum, i am compelled to reiterate that this is: 1. my perspective 2. related to discretionary trading. i'm not trying to step on any toes or discredit any method, strategy, or system.

i sincerely hope this helps.

take care and have a great week -

omni