Dogpile

<<do you not bother with the TPO/lettered chart MP concept at all? You proxy that through traditional TA?>> I did it by hand for months and now feel like I can read it just fine through a chart and a volume distribution. I feel like TA is just more intuitive than looking at a bunch of letters. I couldn't make it through Mind Over Markets either. But if you can read the first 100 pages or so - then read Markets In Profile. Markets In Profile is a pretty easy read, IMO.

We enter Monday in an interesting position. Fridays gap down at the open appeared to begin a new 'down auction' following the multi-day, low-volume 'up auction that completed on Thursday. When a new auction begins, we look for signs of continuation to confirm this (volume and profile shape). Effectively, the break away from 1498.00 did carry nicely but the entire move happened overnight. The market then rejected this downside move by forming an 'excess low' this morning. Thus, we began an 'intraday up auction' (morning low to afternoon high). However, this up auction was weak as volume was very poor and the profile shape shows that new buying and short-covering was being offset by patient-sellers. The true profile structure is probably best seen in combining the last 2 days (Thursday & Friday). If you combine both days into one volume distribution, it looks like a very 'normal distribution' -- with a selling tail above and a buying tail below. A Break from a 'normal' distribution is generally a 'go-with' -- so will have to be flexible for Monday. The market has been creeping higher on low volume. Generally this type of behavior ends in a buying climax as late-to-the-party investors finally give up and enter at bad prices. If this were to happen, this would then set the market up for a good flush the other way. But that is looking multiple days out. For now, I have no real bias for Monday and will likely be a patient trader until something more interesting sets-up. Attached is the profile shape for Friday -- I will work on something more interesting on Sunday. Hopefully, some others can join in and we can collaborate on some analysis and potential strategy for a week that will include; brokerage earnings reports a fed rate cut options expiration this should make for a crazy week...

nobody here it seems so guess I will just talk to myself? symmetric distribution today closed in balance weak volume head & shoulder formation intraday (afternoon low) 3 consecutive up days with a weak afternoon session looks like a short but pending retail sales date at 8:30am tomorrow

something smells. these guys had many, many different strategies on and they all went bad? doesn't sit right. its like a 20-team football parlay hitting a $10billion fund.

not much discussion in 'market profile' area.... thought I would point out that we closed today with a reasonably 'normal' distribution, price closed right on VWAP at 1498.50 and PVP was close by. here is an example of combining statistics with a pattern or two. I put a short on very late in day at 1498.00 to play for an overnight gap. we've had 3 up days in a row but I am unimpressed by the last few days. I did try a long this morning but it didn't fill (missed by a tick) so I took the day off. I came back and this Head & Shoulder pattern had become evident but I did not want to fight the market while it built higher value so I waited until very late in the day to enter as the market appeared to find a home at 98.00 and could come out of this balance to the downside overnight. Effectively, I want to find a short in the morning and this trade is a hedge in case the short works overnight instead of in the morning (both could still happen too).

<<I have another question regarding the SD. How narrow is narrow?>> I will let jerry answer that particular question since I don't use SD at all -- but here is a comment. I use a set number of points from VWAP as kind of a ballpark number to consider -- and try to think more in terms of strength (momentum/volume) of that particular move more than anything purely statistical based on historical data. The market is dynamic and while statistics are crucial to understand -- I don't want to get TOO caught up in statistics as I think there are better ways to do it. but to each his own. jerry very likely has a ton of nuances to his approach such that when I see some of his trades --- I find that we are actually often making very similar trades -- but we are getting there in totally different ways. thus, jerry has figured out through experience how to get a ton of information looking purely at the statistical distribution -- stuff that I just can't see when looking only at a distribution of prices. I know some traders where some combination of oscillators just speaks to them and I just don't get how they do it -- but they do. this is kind of how I think of jerrys approach. he is pulling more out of it then I can certainly see. he has likely been able to do this because he has learned all these little nuances that go along to his approach. kind of like in poker -- there are all those situations that you have seen many times if you have played a lot of hands but each particular situation is actually a very rare thing --- so you get good once you have seen enough hands to build up a library of all those rare but cumulatively important situations -- that is the difference between profit and loss.

<<For example, if price is below the previous day VWAP and PVP go short, etc....>> no idea how the nikkei trades but if it is the first down day after a series of up days, then I like this thinking. if price is below the previous day vwap but the last few days have all seen lower and lower VWAPs -- then price might be expected to start low (morning low) and trade to an afternoon high in a reversal day. but in general, VWAP > VWAP[1] or VWAP < VWAP[1] is an important thing to monitor, in my opinion. if 'building higher value' --- look to go long after a downswing completes and vice versa... this can really keep you from fighting the markets theme for that particular day.

pretty clear that the vast majority of what jerry has written about has used current days pvp, vwap, sd. so at the beginning of the day, you have an especially undeveloped data set. after that, the data set will gradually mature to the point where VWAP esentially gets to where its going - as incremental volume becomes less and less important to the VWAP calculation as the day goes on since you are building a larger and larger volume base on the past (ie, VWAP will change a fair bit from 10am to 1pm but will not change so much from 2pm on unless you are in a very, very strong trend). the idea is that it is profitable to make trades looking for statistical extensions/retracements based on the current data set -- while fully realizing that the data set is dynamic and will very often have different statistical characteristics as the day goes on.

Soultrader, I used to track POC but I find that particularly for the S&P's, the VWAP is the key level to think about. the concepts are similar though. I have spent a lot of time trying to fit PVP into something useful for me but I just don't think it adds much to my set-ups so I am not using this. my advice would be to start with just watching VWAP and learn to see how price reacts to it. there is a ton of good information by watching how it responds to a test of VWAP or a break away from VWAP. I find it fascinating to watch the action the S&Ps have relative to VWAP. the one set-up that is very useful is that when PVP = VWAP in the middle of the day, think of it state of near-perfect 'balance'. other than that, I only look at PVP in context of overall profile shape. here are some notes from todays action.

outlook for tomorrow: I mentioned that today was an 'in-between' day in the Taylor rhythm and that Thursday would likely be a 'sell-short' day. Todays action was consistent with that -- we had a day that built higher value on low volume. More importantly, the day tested the previous excess high and this level was rejected. The previous excess high was the 9/6 closing price -- this represented the close before the employment report gap. Price traded above 1480 today but value did not migrate there. Value migrating above 1480 would nullify 1480 as a key pivot. For now, I am treating this as a potentially bearish test of 1480. (this is based on September ES futures -- which are set to rollover this week -- december S&P's closed 1492.75 on Sep 6 2007). Moreover, it lines up nicely with 2 up days and therefore tomorrow qualifies as a Taylor sell-short day. I will be looking to sell short tomorrow -- particularly on a test of todays high (best test would be a lower high). See attached chart for simple Taylor signal. After 2 up days -- a choppy market might reverse. We are essentially pinned up right underneath key resistance.

if you look as ES.D instead of ES --- you can see the very significant 'bull trap' that occured the day after the 50-day SMA test -- there was a sharp gap down there. That gap is a crucial spot as it represents an 'excess high' and the end to that up auction and the beginning of a down auction. Now since then, we gapped down again off the employment report, another sign of 'excess'. the resulting down auction that came however was on low volume and had 'fat' profile shapes... so the downside ran out of gas. we formed a buying tail (hammer/hanging man type of thing) and auctioned up yesterday -- again on weak volume and a 'fat' profile shape. So we ended yesterday pressed up into the employment report gap (the second of the 2 gaps down). But importantly, price has not yet been accepted above that gap. Thus, we seem stuck in a range between the gaps above and the buying tail below.

sounds like you have a good set-up and some set-ups that aren't so good. simple solution -- keep the set-ups that work and discard the ones that don't. for me, I try to form a thesis and then look for price action that confirms that. I then have set-ups that fit that thesis. If the thesis plays out, I stop trading. If the thesis is wrong, I take a break and may or may not trade again.

<<What exactly is the taylor buy day?>> George Taylor was a grains trader who developed a 2-4 day rhythm for trading. He wrote a book but its a pretty brutal read -- some of the worst writing I have ever endured. The better read is 'Street Smarts' by Linda Rashke. This is the best trading book ever written, in my opinion. Specifically, read chapters 7 & 8 for the basics on trading the Taylor technique. I have tried my best to completely ignore longer-term charts and focus on this Taylor rhythm as a core principle of my trading. There is a lot that goes with it cause trading isn't easy -- but its pretty sweet for a nice choppy market like the S&P futures.

outlook: tomorrow is an 'in-between' day as far as I am concerned. today was a buy day -- but the 'upside auction' was on weak volume and the profile shape does not suggest necessary continuation. Taylor would call tomorrow a 'sell day' which is notably different than a 'sell short' day. The 'sell short day' comes the day after tomorrow. Remember, this is only an initial guideline -- let the market tell you if it is following this rhythm or not. The dominant pattern I see is a 'rising wedge' -- this is an unstable pattern -- especially on low volume. it is also very difficult to trade. the market tends to creep up and then do violent flushes down -- those looking for good momentum are kept off balance by the creep up nature. those looking for downside follow-thru are kept off balance cause of stop-running on the higher highs. I tend to reduce trading when a wedge develops. The market could continue to creep up tomorrow or it could trade 'high to low'. will look for others comments. one other thing. look at the action of financial stocks. a new healthy advance should probably see these stocks act better than they have. we could be making a higher low -- but the jury is out and the stocks were underperformers today. even Goldman Sachs (GS) -- shows only a 'ABC up' pattern so far on the daily chart --- and it is the darling of the group. MER/BSC/XBD all are dead in the water. If MER or XLF were to make a '20-day high' -- that might confirm that a good low is in. as of now, they aren't close (although GS is).

good to have Traders Lab back up. quick review and then outlook for tomorrow. I had a bullish bias coming into today due to the taylor buy day as mentioned in original post. The market gapped up and ran to yesterdays high where it congested and broke to upside. Volume looked decent on this initial push -- it was stronger than previous day but not super-strong. The market then did a A-B-C correction down on low volume before coiling/balancing and breaking to the upside. The first chart is what the market looked like at mid-day. Note the even balance here (symmetric volume distribution). This shows higher prices are being accepted (value migrating higher). as jperl would point out, we also had the PVP lying exactly on the VWAP. you can draw a triangle and the market has lost volatility. I would call this a state of balance from which the market can trend. We also had a key LBR pattern I like to follow - the 15-min First Cross buy. I will discuss this very important indicator sometime in the Technical Trading forum. The market then broke to upside and trended up, reaching my objective that I have discussed in a thread here in the Market Profile section of Traders Laboratory (VWAP + 10 pts). This was the day in a nutshell. Volume ended up very weak after a decent start. Somehow, I managed to completely bungle my trading today. My first entry was almost perfect -- but I got greedy and made only a few points on it. The second entry was ok but I essentially stopped out 'to the tick'. This would have been ok except I then froze on the 3rd entry which would have been a home run and proceeded directly to my price objective. I am going to workout after this, drink an extra drink tonight and try to forget about this day -- it was truly a case of 'what might have been'....

Thread for discussing ES for the rest of the week. This morning the futures auctioned down and ran out of gas. This resulted in a mid-day 'b' profile -- signalling the market having trouble going down - the likely result of patient buying that is offsetting new shorts and long liquidation. We formed a higher low and auctioned back up towards the high of the day. This resulted in a selling tail that formed BELOW the earlier high of the day. Volume was generally weak. The profile shape ended up fat and messy. In my view, the market appears to be in a trading range and has shown no real conviction in the current 'downside auction'. Given that the Taylor bias is going to flip tomorrow, I will be looking long -- but the current technical structure is messy. A higher low is my current thinking. As always, I will have to see how Europe acts and what kind of conviction the market shows in the morning session. would love to collaborate with others with some discussion on what they see in this current messy structure.

5-minutes is too wide, I think... you want a number that is wide enough only to keep you from getting stopped out on noise --- anything wider than that is too wide, IMO.

<<"the secret to trading by science is the ability to recognize the changing market conditions and apply the correct strategy for it" is a contradiction in terms. >> no, I don't think it is a contradiction -- it is just differences in timeframe. Art Collins book goes into this. I am not a great programmer by any means but I can easily write a 'switch' into my program that turns on if one environment exists and turns off if another environment exists. the example Art gives is a switch that turns on in anticipation of a momentum move. his system recognizes this to be occuring if you close near the closing high of a 20-day range and the last 5-day high to low range is twice the size of the previous 20-day range. then use a buy-stop at the opening price + X # of pts. just an example of how a mechanical trader can recognize changing conditions in market behavior.

here is what I did... i created a new individual folder on my hard drive with a name for each new set-up and saved screenshots with notes on them on a daily basis for as long as I was using the set-up. this takes a lot of work but it is the kind of work that imprints things on your brain. for some, I created a blog as kind of a daily journal at blogspot.com (free blogsite). then you can go back and read your notes on a chronological basis as to what you learned about the set-up and its specifics.

<<My problems aren't seeing trades, but refraining from taking the ones that aren't there>> to some degree, the first set-up you find that consistently works is really just funding R&D on finding new set-ups. then your research pays off and you find a new one that makes you money -- but at the same time, the first one stops working. then you find another one and the second one stops working. repeat, repeat, repeat. then you finally have a nice library of set-ups and you find that your first one starts working again once you figured out some new twist on it... so now you have 2 set-ups working at the same time and now you become profitable. then the market dynamics change and you have to adjust again. you improve old things you have already used, scrap others and figure out new stuff. this process takes more than 12 months of intense study -- many people just never get there.

its very similar to a keltner channel trailing stop. keltner channel is based on a moving average and this method is based on just the last close + 3 ATR's. but a 1-min KC (20 period, 2.5 ATR keltner channel) is another method that works pretty well.

<<otherwise I would use IB>> if you only trade futures and stocks and not options -- what is the advantage of IB over TS? I very rarely have problems with filling order at the bid/ask price for futures. IB clearly has something special in options with their Timber Hill subsidiary -- but what do you get at IB for futures that you don't get with TS? I have used Tradestation for years and would recommend it highly as it is a truly amazing piece of software for active traders. I was on the professional buyside at a firm with a $10 million annual IT budget and we used institutional grade software including ILX/Bridge/Bloomberg/Factset/Advent -- and Tradestation has more useful functionality than all of those --- though I do wish they could do something with Factset to integrate that. One thing I don't like is that you cannot trade european futures on TS -- though you can get the data feeds through Eurex.

updating this thread with a longer-term chart of NQ Futures data. This has been a pretty good indicator for the market as a whole (not just Nasdaq). Note that this is not showing a major bottom in place yet.

thx jerry. good point. in the past, I would have waited until the next day for a test of the low and then look long as there were many other reasons to think this was the end to an auction. we had weak volume on the down day and a taylor 'buy' bias going into the next day. indeed, a higher low was made and there was very good long opportunity the next day on this strategy. but more and more now, I am trying to find ways to get in very late in the day and hold overnight just in case my 'next-day' set-up is screwed up by a large overnight gap. I am a short-term trader and love the minimal risk and low variance of my strategies. I will be working on such to add a set-up to my trading plan based on this sound market profile concept -- the 'symmetrical distriubtion with a price-spike' set-up --- a good concept in which to find 'set-ups' around.

james, if you are only 7 months into trading -- you still likely have many more months of frustration ahead of you. I know this from personal experience. It will be discouraging and frustrating -- expect that. it takes a long time to be a consistent trader - don't think you are somehow more special than everyone else -- it takes everyone a long time. the only thing I can say is that keep your contract size down until you become consistent. once you get over the hump (at least 12 months, likely a few more months than that), you make back all those little trades you lost rather quickly. treat it like tuition and you want to pay as little tuition as possible -- the way to do this is to keep your contract size down. I know from experience and from speaking to other traders that devoted 100% of every day to trading -- it just takes a long time for most traders to learn how to do it -- I would say 15 months is a good number to look for. it is certainly possible to do it in less than 12 -- but I would definitely be conservative until at least 13-14 months.. I would recommend to anyone, no matter how much money they have, to trade no more than 2 contracts for the first year. you will 'think you are there' 10 times before you actually are... besides, a friend of mine made $140,000 trading just 2 contracts at a time before he increased his size. it is possible. he is an especially gifted trader and he is making many, many multiples of that number now -- but it goes to show that it is possible for some to do it with low contract size. your goal should just be to learn and don't get hurt until you have been at it 13-14 months -- then re-assess at that point -- and even then, only slowly bring up your size.