[Tradewinds]

Originally Posted by UrmaBlume »

The market profile graphic as a technology is dated and being replaced by an evolving technical base.

Looks impressive, and very accurate. I'm interested in the fact that the charts show pre-market hours. So I'm assuming that the data being used is not dependent upon regular market hours.

[UrmaBlume]

Originally Posted by Tradewinds »

Looks impressive, and very accurate. I'm interested in the fact that the charts show pre-market hours. So I'm assuming that the data being used is not dependent upon regular market hours.

Thank you for the kind words.

It is not volume that drives price. It is an imbalance in that volume that drives price - that is how you can get such big moves on such small volume during the night session.

[djohnsonhot]

There is a fella named Michael Jardine, at his website, Enthios Economics | Real world markets, live commentary by Michael Jardine, and he posts his Market Profile high and low value areas almost daily (he travels and works, and thus for days he may not get on the computer and do his work). You can see for yourselves how well this works. My observations of his trades is that he is stopped out quite a bit and his winners are in ticks, and not points. And, he wrote a book on the subject. Now, if his trades are limited to ticks, then I am guessing his scale is quite large compared to most retail traders

[UrmaBlume]

Originally Posted by clmacdougall »

UB, you put it eloquently as usual, "Today everybody can see the size of every transaction and further can see the motivation of the transaction." The motivation of the transaction is what must be attempted to be understood.
There is no way this "motivation" can be understood by an outdated structural understanding of the market as attempted by the MP methodology, but what it theoretically tried to reveal was in earnest the truth of what can move the market in a single direction, instead of rotationally.

I couldn't agree more and thanks for the kind words.

Price is and has never been as much of an indicator of future prices as is the degree to which trade is imbalanced plus the degree of commercial participation in that imbalance.

So many often ask about the big price movements on very little total volume during the night session. They occur because night trade is almost all commercial trade and all of that trade is usually on the same side thus - no significant opposing activity.

If the book, depth of market, is grossly out of balance, big price moves on little total volume will be the result. This explains why higher than normal volume does not necessarily confirm a move but can signify the presence of opposing trade.

This is confirmed by the fact that the days that have the biggest price moves do not have as much volume as strong key reversal days, i.e., both long term/value buy and seller present.

This dynamic is often demonstrated on local and session extremes when the momentum of day/local trade runs into unlimited opposing trade. At the formation of these extremes there is usually not a big amount of trade as compared with the high volume prices of the day but the transactions occur at a greatly increased velocity as price momentum day traders run into an unlimited stream of auto orders placed by "house" value traders.

Another interesting point about the formation of these extremes is that many bottoms are formed by trade on the bid. This is recorded as selling volume by most data vendors and is the one point where thay are wrong. The explanation is that momentum has run into stronger opposing activity, that the activity is conducted by commercial traders and that is confirmed by the facts that 1) that the velocity of trade is such that it can only be conducted by machine ordered trade and 2) even though the trade is on the bid prices don't continue down, price in fact reverses because the bid is bigger than the market.

All of this happens in the second or sub-second time frame and yet the total volume of the event that establishes the extreme is but a fraction of the total volume done on the high volume price of the day.

Of benefit to stock index futures traders is that many time when this activity occurs it happens in all of the major index futures at exactly the same time. This is a great confirmation that the reversal is real and is demonstrated in the chart below which shows blue/buying volume spikes across NQ, ES & YM that formed a session top - tops formed on an exhaustion of buying and bottoms formed on an exhaustion of selling at a very high velocity and density of trade.

Again, thanks for the kind words and when you have a minute if you still have my phone number please give me a call or PM me with yours, I have some new, unpublished work I would like to show you.

cheers

pat

[BlowFish]

Originally Posted by joshdance »

Good point BlowFish--the "magical" POC is nothing magical at all. As an aside, if enough people adopt a strategy based on fading the day's (or yesterday's, or..) POC, for example, then it ceases to work.



Can you give an example of the kind of tool you're referring to?

Take a look at Jperls 'Trading with Market Statistics' threads. A couple of pretty cool tools and a bunch or ways of using them. A good starting point.

[edakad]

Volume has a skew in itself as it is high during open and close. I find TPO charts more beneficial. The gaussian distribution is an ideal situation we find rarely, however we analys each days distribution in its deviations from the ideal Gaussian distribution.

[KeyToTheCastle]

Every now and then I see a subject that I'd like to respond to but just don't have the time or the need to get into a pissing match, cause we all know thats where it seems many threads wind up going. Hopefully this thread doesn't follow suit.

Anyway, I don't know if it's a case of MP/VP being out dated as much as it is the fact that traders try to turn MP/VP into a system. (btw personally I prefer to use volume based profiles vs. TPO's and time based profiles)

I've been there...early on in my career, when I first came across MP, I tried to use it as a system. I read most of the books and I tried every which way I could to develop an edge based on the IB, day type, tpo counts, the 80% rule, etc..... but I was never able to find anything robust that worked for me.

I eventually came to the realization that VP is best utilized solely as a way to organize and present market information, just like the purpose of any other chart.

Specifically I use VP to help me to shape value and observe price discovery (acceptance and rejection.)

This in turn allows me to quickly identify previous areas of supply/demand imbalance which is where most of my focus lies. Sometimes these areas come from low volume points, other times they come from within high volume areas of balance (value areas). I know there are traders who say volume is unimportant and therefore a volume based value zone doesn't confirm much and in a general sense I agree . On the same token I realize that imbalance can form anywhere and at any time....in areas of low volume or high volume. Yes, imbalance is usually more visually obvious in low volume areas where price was swiftly rejected. But within any previous high volume value zone, or area of balance, there had to be a period of imbalance at some point otherwise price would have never left the balance area in the first place.

I keep my trading as simple as possible. My first priority is to identify previous areas of supply/demand imbalance. Then, as price comes back into these areas, I monitor the real time order flow for a shift in supply/demand which will confirm a trading opportunity. One other important piece of info I use is a real time dynamic value channel which serves as a filter to confirm that I'm buying wholesale levels and selling retail levels (relevant to the time frame I'm trading on).

I'll post a chart from today illustrating some of what I look at in a bit.

[KeyToTheCastle]

Here's an intraday chart of GBP/USD from this afternoon.

It shows the market coming down into a previously defined value zone ( created using volume profile) which also represented an area of demand imbalance.

Rather then using the zone as an area to initiate a long position, I used it instead to close out remaining short inventory from an overnight short position. Either way the same principles apply.

1) Identify previous area of demand imbalance.
2) Use dynamic value channel to confirm wholesale pricing levels.
3) Monitor real time order flow for a shift in supply/demand for trade entry confirmation