squishy

I like to watch just these four markets (NQ/TF/ES/YM) side-by-side. Often one or more of these markets will turn prior to ES, giving at least a heads up that a trend reversal in ES may be close at hand.

Hi All, Attached is an example of my current trading screen. I started using just this view a few weeks ago, mostly to see how market profiles developed over the course of the day. It's interesting how very different each market acts and how each profile develops. A curious thing happened though. Paying attention to just this view, with no charts or other displays, has improved my trade location and management incredibly. From simplicity comes clarity, I guess. I'm able to just watch DoM and the volume transacting at each level. I'm looking for something very specific on the DOM. I'm looking for a "sheepdog" trying to keep price up or down. This, to me, indicates big money is playing. The circled area on the NQ contract shows what I'm looking for. There's 300 on the Ask. My read is this trader wants to keep price down. He's not selling, he's buying. Where will he dump? Probably at (PVP + 10 Points). I think this guy got / is getting long at 40-ish (then current PVP). You could scalp long once the sheepdog is removed or fade the likeliest cover area of 50. I watched DOM intensively years ago, mostly on the ER2. I got frustrated after awhile and felt like it was a dead-end. Now it seems more clear, especially when you see multiple markets being help at a level while a big fish is putting on a position. Maybe it's all in my imagination. Anyway, I thought I'd share with you what has been a turning point for me. Hope you all have had a good week.

(The following description is from Camron School of Trading: Year4 - Term2. The entire site is worth a read if you are interested in DOM. The DOM "games" described are mostly evident on the NQ right now, hard to see on ES and less prevalent on TF and YM) Assume the market is going up. When a large order appears in the queue above the market, one of three responses can occur. (a) The market reverses, (b) comes to a stand still, or © goes straight through it. Usually, the market will trade up to but not touch the order, bouncing off it and retracing slightly. Then it has another look. And another. It will oscillate for some time, through a range of 5 to 6 points. Assume 5 points for the purpose of this discussion. During the oscillation process particular care needs to be exercised, examining the size of orders 5 points below. That's where the sheep dogs work. Sheep dogs are medium sized orders large enough to hold the market up. If the sheep dogs appear then look for a REVERSAL, otherwise look for a BREAKOUT. THE BREAKOUT. If it is going to go through it, once that moment arrives, 1 of 2 things can occur. (a) the order is nibbled away in small chunks like termites, or (b) the large sell order will be pulled out. Once the termites start they don't stop. However whether it is pulled out, or taken out by the termites, the market will continue on through. Until the termites get to work, the market will oscillate, and the sheep dogs will not appear. So what are the sharks doing. They will feed during the oscillation process. If the commercial bid ask count is positive for this time period, they are buying, and, the sheep dogs will not appear. The termites will appear, eventually, after the sharks have had their fill. THE REVERSAL. If it is not going to go through it then the large order will (a) never be touched, or (b) will be taken out entirely in 1 hit. If it is taken out suddenly in 1 hit the market rarely continues on up more than 1 or 2 points. If it is going to reverse (because it is a genuine top) it is likely that medium sized orders will appear 5 points below to keep the sheep penned in while the sharks get their fill. So what are the sharks doing. They will feed during the oscillation process. If the commercial bid ask count is negative for this time period, they are selling, and the sheep dogs will appear, and, will then disappear, after the sharks have had their fill. If the sheep dogs appear, then, the termites won't. And the large order will either (a) stay there, and not get touched or (b) get taken out in 1 hit. It's a probable top.

Studying "how the brain works" and it's limits have been a great help to me. The limits of working memory are very real. Trying to keep any more than 4 - 6 items "top of mind" is humanly impossible. "Mind Hacks" by Stafford and Wells is a good resource. Also the writings of Kahneman and Tversky on how humans make decisions. "Priceless" by Poundstone is a good overview. "I should have done this" thinking is an example of hindsight bias. All humans see the past much clearer than the future. In fact, a good mind trick is to prepare for the trading day not by asking "what do you think is going to happen?" but instead imagine you are at the End of the day and describing to yourself what happened. Having a profit target in mind, or a position on, contributes to "confirmation bias" where you can see confirming evidence but tend to ignore contrary evidence. It can be mitigated by always writing down or imagining the opposite of your current position. As a side note, I am very grateful to the contributors to this thread as it's helping me develop my trading plan. I'm a small lot, break-even trader, working on putting in my screen time and developing my own trading. I find it very helpful reviewing the trading day "through your eyes".

Thanks for the volume series, nice view of the market. The longer term MP shown, however, seems misleading. The price series shown includes at least 4 contracts that have had their price back-adjusted to form the continuous contract. This distorts the prices of the actual contract, at the time it was trading. My platform (TradeStation) shows ESH11 trading in the 1300 area 2/2/11. How are you other MP traders handling this for longer term MP? (or am I way off-base?)

Hi Joshdance - I'm attaching a screen shot of the 5 minute chart from 1/18 (the same day as your screencast). As it happens, this was a perfect example of how the VWAP / PVP relationship might have you into a good trade. (note: CST is shown on screen, so 8:30 is 9:30 ET). When the PVP built in around 1287, it was about 3 point below VWAP (the red line). Price could go either way from here, but if it goes over VWAP you have a pretty good chance it'll go up at least to a 1 std dev profit target (the yellow line). There was a second trade opportunity above the 1st Std Dev (the yellow line) to the 2nd Std Dev (the blue line). When the second PVP built around 1297, it was above VWAP, resulting in a negative skew. Again, this doesn't predict what price will do, but if price went below VWAP you have another good short opportunity. As it happens, price continued going up. If you followed the rule "don't short over VWAP" you would have kept yourself out of any shorts at this point.

After viewing Jerry's thread I did some limited backtesting of VWAP trades and it appears, from my tests anyway, that there is a slight edge going long above VWAP and short below VWAP (simply using random entries). There is also a statistical edge using the "Shapiro Bar" effect (again tested using random entries). While neither is a trading system in itself, it's these little things that add up. Thanks for starting this thread -

The following link really helped me think about how markets develop: "Trading with Market Statistics" http://www.traderslaboratory.com/forums/market-profile/4803-trading-market-statistics-links.html Understanding where VWAP is compared to the current Peak Volume Price (PVP) is a key component in defining whether the market is "in balance" or not (VWAP = PVP equates to an equilibrium point). If VWAP is not equal to the current PVP, there are specific strategies to employ above or below the VWAP. Price advances often stop when VWAP moves to a newly established PVP. Maintaining an awareness of the current relationship of VWAP to PVP has really helped with my understanding of how markets develop.

You will need to make sure you get historical data on all Failed companies as well. Many of former IBD top 100 stocks are out of business and not part of the current set of most historical data providers. It's "survivorship bias" and will greatly affect your results of actually trading what you discover.

My experience trying to trade for very small scalps is that you don't get the same fills real world as the simulator. You really should try it for yourself to see the difference, nothing teaches better than having real money on the line.

Tradestation has an indicator built in called "volume distribution" that works pretty well as a MP substitute. Also, the matrix is pretty effective during the trading day at producing an MP style distribution chart.

The only discussion I have ever run into that explains large order fragmentation can be found here: http://www.camron.com.au/mainpage.htm This site discusses the Australian market, mostly, but is definitely relevant to trading the e-minis. I use a Time and Sales window filtered for 10+ lots on the Russell e-mini to see when larger traders are coming into the market. Using a Volume Distribution chart will help determine volume at a price level and help uncover institutional action.