Some New Thoughts

[Guest Muir]

1. Steidlmayer has stated (repeatedly) that today the "Market Profile" is concave.

Wow!**

 

----(three additional thoughts)----

 

2. Steidlmayer, has said repeatedly throughout the years that Market Profile was not intended to be a trading methodology; rather, each trader could see the market as it was in present time and devise his own trading approach based on what the market was doing at the time.

(Dalton and others notwithstanding)

 

3. Steidlmayer is not a great trader and has never pretended to be one. (This is an important point in my opinion. Skill and methodology employed are not one in the same. Example: there are probably great traders that use lousy systems and would defend their methodology because they really have no idea of how they actually do trade.)

 

4. Nothing really new under the sun. There is a primitive "Market Profile" in the book "Studies in tape Reading" page 88.

Original publication dates of articles: 1908-1909

 

_______________________

 

** (from #1 above) questions/observations:

 

I've seen this again and again on the day timeframe.

Although, it is true that if I add enough days I see a nice convex Bell curve, but is that just chance that if I happen to add enough arbitrary days I finally see a nice curve?

 

If concavity is fragile, as Nassim Taleb states, then let us assume the ride will be wilder.

 

Any strategy assuming a day convex bell curve is wrong. If this statement is true, does this invalidate a thread like "Trading with Market statistics?"

 

________________________

 

Would like comments, what am I missing?

I'm really curious.

 

p.s. I happen to really like "Markets in Profile." (read twice)

Never met Mr. Dalton (which from certain comments made by MightyMouse was to my benefit.) Steidlmayer seems like an unpretentious old guy who really just likes to trade, never met him either.

I'm more of a "tape reader" like guy, and prefer to see volume horizontally, but I've read dozens and dozens of posts here and watched the "Trading with market statistics" SWFs.

 

_________________________

[daVinciLite 10]

Hello,

 

Interesting post since I just finished rereading Nassim Taleb’s “Fooled by Randomness,” and boy can I be fooled by randomness. As he sums up in the end of that book’s second edition:

 

“We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract.”

 

Well the correct use of Market Profile is about as abstract as they come. So it is no surprise it is misunderstood.

 

The strength of the Profile allows one to differentiate the “concave” from the excess or as Nassim would say: the fat tails. So you can tell if the market in “concave” or in excess (fat tail). The profile is nothing more than flattened out 30-minute bars. But Steidlmayer was very creative in what he did. Too bad he has problems applying his own tool. I guess he scorns the abstract just like so many academics.

 

I went through the “Trading with Market Statistics” threads a year ago. It taught me to pay more attention to the VWAP (Volume Weighted Average Price) and VPOC (Volume Point of Control), but I could not find an edge with it that was better than my current method. The VWAP and VPOC are very important prices though. Intra day market activity definitely takes them into account.

 

Good luck,

dVL

[Guest Muir]

Hello,

 

Interesting post since I just finished rereading Nassim Taleb’s “Fooled by Randomness,” and boy can I be fooled by randomness. As he sums up in the end of that book’s second edition:

 

....

 

The strength of the Profile allows one to differentiate the “concave” from the excess or as Nassim would say: the fat tails. So you can tell if the market in “concave” or in excess (fat tail). The profile is nothing more than flattened out 30-minute bars.

 

I went through the “Trading with Market Statistics” threads a year ago. It taught me to pay more attention to the VWAP (Volume Weighted Average Price) and VPOC (Volume Point of Control), but I could not find an edge with it that was better than my current method. The VWAP and VPOC are very important prices though. Intra day market activity definitely takes them into account.

 

Good luck,

dVL

 

Davinci,

 

 

 

The point is that the day profiles on commodities are no longer a Bell Curve hardly ever.

see

Volume: The Key to Understanding Today's Market

 

That's J Peter Steidlmayer on CME.

 

I'm not a good poster so I should have used examples but basically most day profiles are now:

 

<

 

rather than

 

>

 

with 2 fat tails.

 

just look at gld or gc for past 30 days, for example.

 

I see absolutely no edge with a lot of the strategies posted (actually, seems like losing propositions,) but when I put together day profiles to make a somewhat truer "Bell curve" multi- day profile, POC and VWAP are nice tools indeed.

 

I'm on "Antifragile"

I enjoyed "Fooled by randomness the most."

 

Likewise, good trading and reading, strongly recommend "Simple Heuristics that make us smart" which Talib likes.

I read the book before he did

[Guest Muir]

Hello,

 

Interesting post since I just finished rereading Nassim Taleb’s “Fooled by Randomness,” and boy can I be fooled by randomness.

 

 

The strength of the Profile allows one to differentiate the “concave” from the excess or as Nassim would say: the fat tails. So you can tell if the market in “concave” or in excess (fat tail). The profile is nothing more than flattened out 30-minute bars.

 

Good luck,

dVL

 

DaVinci,

 

Tried to post earlier but guess the links weren't OK with moderator. Anyways, that's the point,

once the specialist and floor traders went way of the dinosaur, you don't see this: >

rather you see this <

Two "fat tails."

If you google Peter Steidlmayer and the word "volume" you should see a link to an exchange were he himself explains this.

On the thread "The evolution of Market profile" I never saw the most obvious changes:

floor traders--->electronic exchanges (no specialist system) therefore the artificial Bell Curve died.

 

I do have charts with VWAP and POC but it's hardly ever a bell curve anymore.

 

Good luck on your trading. Enjoy fooled (I did)

 

p.s. Taleb equates concavity with fragility in Antifragile.

[daVinciLite 10]

Hello,

 

Thanks for the book and video link. I enjoyed the video. It is kind of like “trading therapy,” as Nassim puts it. But once the video is over it’s back to the real world. I saw his video on “Volume Strips” in 2011. It was and still is great therapy. It may be even more entertaining and therapeutic than that cab drive Nassim talks about in “Black Swan” because of Steidlmayer’s many twists and turns, or can I say mental gymnastics, that he specializes in.

 

I’ll definitely will read the book since it is right down my ally and will need it in the years to come.

 

I was mistaken in my use of “concave” as it relates to the profile. I assumed you were describing the shape of the profile. Yes, “concave” in the Antifragle context means the more volatility or harm a system has the more it is hurt. Where as an Antifragle system is “convex” thereby getting more benefit from that same volatility or harm.

 

Are you saying that “Trading with Market Statistics” may be concave because it uses statistics?

 

Here are some Nassim links you may enjoy:

 

 

[ame=http://www.youtube.com/watch?v=33kET2YPWls]04 10 2012Nassim Taleb - YouTube[/ame]

 

 

[ame=http://www.youtube.com/watch?v=6QiiFSOrJhQ]Nassim Taleb Speaks to a Clueless Congress (Part 2 of 2) - YouTube[/ame]

 

 

 

 

After Words with Nassim Taleb - C-SPAN Video Library

 

 

Good Luck,

dVL

Edited March 6, 2013 by daVinciLite

[Guest Muir]

Hello,

 

Thanks for the book and video link. I enjoyed the video. It is kind of like “trading therapy,” as Nassim puts it. But once the video is over it’s back to the real world....

 

Are you saying that “Trading with Market Statistics” may be concave because it uses statistics?

 

Here are some Nassim links you may enjoy:

 

 

Good Luck,

dVL

 

Thanks for the links!

Appreciate it.

I saw the first video in 11 also

But this is a follow up he did in Jun 27, 2012 (grueling 1:55:08)

Volume: The Key to Understanding Today's Market

 

 

I'm saying that "Trading with market Statistics" is fundamentally flawed, even ignoring Nassim's market "fat tails," 2010 flash crash, 1987 plunge (and any other time that markets have done what would take "billions and billions" of years to reproduce if the market were a domesticated Bell Curve,) yes, even ignoring all that, the only time it did "work" was when the specialist and floor traders (which we now see nostalgically in "Trading Paces" and "Ferris Bueller's Day off") were there, creating a Bell Curve by selling to the other time frame, and making money in the process, of course.

 

As a visual tool, volume profiles are a handy tool.

But more than that, I'm sure many traders have developed successful methods that utilize Market Profile.

“Trading with Market Statistics” as shown can't be one of them.

Others here have stated similar thoughts that Market Profile was a flawed idea, I disagree, it was a tool that others developed systems around, some good, some flawed.

 

In search of the better ones.