Random Comment Regarding Volume Distribution

[Dogpile 10]

meanth the title to be:

 

Random Comment Regarding Volume Distribution on ES (got itchy finger and posted too fast)

 

 

when you see price building at a single price and suspect the market is balancing.... wait until at LEAST 40,000 contracts trade on ES at a single price before you can expect a potential breakout.

 

this rule of thumb can keep you fading the moves to the std dev bands until 40k+ contracts trade. somewhere north of 40k contracts, it very often takes 43k+ --- you can stop fading and start looking for a breakout. this simple rule of thumb is just something I have noticed after staring at volume distributions for the last 3 months....

 

I am calling this: 'Dogpiles Random Rule #1' --- should become a mainstream classic.

 

seriously though, just watch and tell me if you agree. I am talking about the ES.D volume distribution --- I use Tradestation.

 

dog

[alleyb 10]

The only thought I have on volume at a price before a break out occurs is that markets are dynamic and evolving with increasing volume. One day next year I fully expect ES volumes to trade 8 million in one day. Don't get stuck in eternity and also understand how volume changes at moments like option expiry, roll-over, day before/after market holidays plus the traditional so called holiday months like August or December. IE I am saying a degree of flexibility is warranted rather than pure precision.

[Dogpile 10]

IE I am saying a degree of flexibility is warranted rather than pure precision.

 

yes good point.

 

I meant it to be taken as a concept rather than an everlasting rule. I posted it simply because I wish someone had shared this with me a few years ago. Would have saved me a lot of money not getting chopped up.

 

The concept is just that you should almost EXPECT the market to play a chop-chop game after some good morning movement (with some exceptions). This choppy action is what is needed to eventually set the market up for an afternoon directional move. 40,000 was just a number I have pointed out as a starting point.

 

take today as an example (Wednesday):

the market played a sideways chop game for much of the day. 40k contracts did not form at a single price until 3:40pm. Thus, the play was to either fade moves away from 'value' or just wait. Not getting caught up in that chop (or playing fade-trades only before 40k) was a nice guideline to have. The market ended up printing ~55k at 1489.50 today and then had a nice directional move down for -20 pts. Waiting until at LEAST 40k saved you any chance of getting caught in the chop today. Waiting for 55k was golden on this day. Tell me when a market is ready to trend and I can just bracket it and use a stop and clean-up.

 

Over the last 8 weeks, the median daily PVP is 54,986 contracts. The lowest one that occured is 39,917. As market dynamics change and volume goes up over time in the futures market, 40k will prove too low and I will adjust it upward. But I am just thinking of 40k as a MINIMUM type of number anyway.

[Dogpile 10]

A few other things I am monitoring:

 

Extremely high PVP's have become important price pivots.

 

Multiple daily PVP's building up near each other also have meaning.

 

Last Wednesday, the daily PVP actually built at a price outside the 'value range' for the day. (ie, the PVP was below the Value Area Low). this PVP was also the lowest (in terms of number of contracts) in the last few months. In this situation, this was a signal of extreme weakness as the market dropped another -30 pts the next day.

 

I find the 'daily PVP watch' to be something that is quite useful to watch and think about. there is a ton of information there. Would love to discuss what others are seeing and what they may have picked up that I haven't yet discovered, which is surely a ton..

[alleyb 10]

fair enough re your comment on 40k as a tipping point in volume.

Re: ES

Take yesterday Nov 13th and look at the break down of volume at price and one can see the buying that came in seems to have been roughly 100k net with an average at 1478. Then a quick glance today Nov 14th shows roughly 50k were sold today at an average of 1476 leaving the buyer net long 50k average 1480. So what apparently happened was that the buyers became a little exuberant at todays highs and were forced into chasing their tail. No doubt you will say this is conjecture or subjective and maybe there is an element but if you look at sells vs buys and look at statiscally high levels of liquidity then you can see that yesterday there were several instances of 20k on the way up per price but that today it was a maximum of 14k at one price but most were 10k or less. There is still some selling to be done whether on weakness or on a rally

[alleyb 10]

as for PVPs there is nothing unusual in that. High volumes have always been the ending and starting of distributions in Stocks and Low volumes in Bonds. since 1982 and 1978 respectively. Prior PVP levels will always act as a magnet and is in fact not the area to trade at as the only advantage is for the broker. PVPs should be viewed as a get out jail card unless of course your objective is to scalp as for some it is for minimum trend returns

[mister ed 10]

Thats some great observation in there guys. Will have a play with this concept too and see what I can come with.

[Dogpile 10]

here are some comments on last 4 days. I don't mean for this to be a trading strategy in and of itself -- just a higher level concept to be aware of...

 

My hypothesis was that the market will generally not sustain a trend until 40,000 contracts trade at a single price. The implication of this is that you can generally think about counter-trend trading until you get to something approaching 40k contracts and then you need to start to be more careful of counter-trend trading as the market might have chopped up enough traders such that a trend could not ensue. The bigger implication is to then gear-up and try to catch the trending move that could develop and just hold on.

 

Be aware that this is just a tendency I have noticed. The market could trend strongly and THEN do its 40,000 after the movement --- but somehow, some way -- it will get to 40,000 on any decent volume day. I will add the caveat that it is important to figure out ways to confirm this tendency on lower-timeframe such that you do not get 'run-over' in a trend day. Personally, I like to watch how price is reacting to VWAP and to use various standard deviation types of methods to gauge whether the market seems to be acting consistently with my various trading concepts.

 

Let's look at last 4 days from only a high-level. Tuesday, Wednesday and Friday were very much consistent with my hypothesis - Rangey Price Behavior until 40k.

 

Tuesday was a trend-day but even that day first printed nearly 50k contracts at 1461.50 before the REAL trend began.

 

Wednesday was straightforward sideways chop with a giant plunge at the end after printing nearly 55k contracts.

 

Thursday came close to 40k before dropping really hard (it hit 38k). Obviously, when you see price failing just under VWAP, as it did on Thursday on that test UP, you would want to think short. A market that is rejecting VWAP (while under VWAP) is a short.

 

Friday was a 'wide and loose' day that saw giant swings but no sustained trend away from VWAP.

 

All you really have to do is catch 1 of these afternoon moves and your week is made. Or catch just a piece of a few of them and your week is made.

 

[Dogpile 10]

Updating this thread for the last few days.

 

Again, my thesis is that you get a better trending move only after 40k contracts trade at a single price. If price moves strongly before 40k contracts trade, it is likely to ultimately fail and you should consider fading the move on pushes into support/resistance. Once 38-55k contracts trade -- gear-up to play for a potential trending move breakout (bigger win). This is a point of very good reward-risk.

 

Monday Nov 19th:

We had a 'breakout' set-up coming into this day. Friday had been a narrow (nr7), inside day. The classic Tony Crabel play is to take a first-hour breakout. The market did do a successful first-hour breakout basically as soon as the first-hour was over. When in breakout mode, this is a 'go-with'. That said, note that contract volume did NOT build at a single price sufficiently and thus the move ran out of gas as the odds are that 40k+ contracts WILL build at a price at some point and thus once the market has already trended, you should now EXPECT chop. This is what happened as volume first built at 1442.00 for 48k contracts. This looked like it would be the PVP for the day. The market made a break lower after building that 42.00 PVP and it was reasonable to try for a trending move lower after all this chop. If watching the volume distribution in real-time, you would have seen clearly that buyers came in aggressively at 1437.50 as the volume bar at that price shot out very aggressively indicating extremely strong buying and that price would not go lower. (Watching this in real-time was dramatic and actually also foreshadowed a nice 14-pt move up on the overnight Globex session).

 

Tuesday Nov 20th:

Tuesday needs commenting on... This day really stands out for being an especially unique, crazy day relative to other days.

 

1) Volume was heavy on the day with NYSE volume going over 2 billion shares during a holiday week.

 

2) The volume distribution is quite different than any other day in recent memory. For such a high-volume day, volume was spread out across the entire price range. This is highly unusual. This was the first time in months that no price reached 40k S&P contracts traded while volume for the day was heavy. The range on the day was 34.50 pts.

 

3) The market showed very strong 'range expansion' off opening price (Opening Price was also 1437.50 -- perhaps not so coincidentally, remember 1437.50 was the huge buying price from the previous day). This upside Range Expansion on decent volume massively failed in an 'outside day'.

 

Following the rule of thumb for Tuesday would have you doubting the sustainability of a trend until 40k contracts traded (we were not in Tony Crabel type of breakout mode). This was a valid high-level concept because the market tried to trend up and couldn't, then tried to trend down and couldn't sustain it. But this is a bit misleading because we did have a 34.50 pt range on the day --- it was like a day with a trend-day up, a trend-day down, and then another trend-day up all within the same session. This was one of those days that was just very rare and you kind of shake your head at how crazy it was.

 

Wednesday No 21st:

This was straightforward day where market attempted down before building 'proper' chop. This was a fade. Market then attempted up before building the proper amount of chop and this was a fade. Classic 'Range Trading' until 40k contracts trade. The market then chopped sideways until 45,576 contracts traded at 1431.00. It then faked up and trended lower (sustained its trend). Importantly for intraday traders, you could see how no volume spike occured late in the day -- signalling that big money was not going to hold the market up and that the trend down had legs. This is in stark contrast to Mondays action where on the attempt lower, volume spiked hard at 1437.50, denying the trending move lower.

[snp500 10]

Dogpile --

 

That is an excellent indicator on your charts. Is that available somewhere on this forum?

 

Many thanks in advance!

[drwarbuck 10]

I am new to this site. I also use tradestation, but wondered if you know whether market profile software can be adapted to tradestation charting.

 

thanks

[mike_ITL 10]

fair enough re your comment on 40k as a tipping point in volume.

Re: ES

Take yesterday Nov 13th and look at the break down of volume at price and one can see the buying that came in seems to have been roughly 100k net with an average at 1478. Then a quick glance today Nov 14th shows roughly 50k were sold today at an average of 1476 leaving the buyer net long 50k average 1480. So what apparently happened was that the buyers became a little exuberant at todays highs and were forced into chasing their tail. No doubt you will say this is conjecture or subjective and maybe there is an element but if you look at sells vs buys and look at statiscally high levels of liquidity then you can see that yesterday there were several instances of 20k on the way up per price but that today it was a maximum of 14k at one price but most were 10k or less. There is still some selling to be done whether on weakness or on a rally

 

 

Alex,

 

I read only now your message.

 

I have a few questions and would be pleased if you could reply:

 

- do you have a picture of the tool you use to have the breakdown of price ?

- by "buying seems to have been roughly 100k net" you mean that the trades done at the ask minus those done at the bid were 100k ?

 

Thank you,

 

Mike

[alleyb 10]

Mike - I have a Tradestation eld that in histogram fashion shows the dominance of buyer vs seller. It is a simple tool that you should be able to find an equivalent of on the Tradestation blogs but the reality is that I am a hands on type of trader and so I follow the tape and start observing and counting off 10k volume charts and I just figure a reasonable average - for averages are what count to an institution like hedge funds rather than a precise price - This work then is one element of input to my own LDB - other parts are in terms of establishing and correctly identifying the type of day and figuring the dominance of what type of trader eg yesterday Friday Aug 1st was a Normal Day which means that the Long Term or CTi2 or Commercial was active on the extremes selling high and buying low leaving the CTi4 or Non Commercial a net seller and Day Traders chopped up in the responsive trade that occurred where these latter guys bought high and sold low. Again I observe price or time and sales or ticker tape or volume however you wish to refer to it and futures being a zero sum game ie for every buyer there is a seller I count total volume exchanged ie 10k bar = 10k buyers vs 10k sellers = if price up then buyer more agressive and dominant. I don't get into precision of exact numbers for the difference between 10 or 12 is neither here nor there and then I look at the price movement amd the pattern that the Profile then takes on relative to certain key parameters. For example high volume and price did not move = buyer met his match vs seller and vice versa. Price up then buyer dominant etc. It is a little bit more complicated than just this to work out the LDB (Liquidity Data Bank) but its doable with a little bit of time and effort and in my MP101 and MP102 CBOT broadcasts I referred to one methodolgy of counting that is very valid and not too complicated but the reality is I want to know the position in terms of Lots or Units that the dominant trader is currently carrying. So right now the CTi2 are flat and the Cti4 are short 1 S&P and Long 1 Russell2k . As I say the 1 lot = 1 unit which will differ in real quantity from institution to institution. I care not to break it down anymore than number of lots or units for then I know what the street position is and I can position myself accordingly. So for Monday Aug 4th expect more responsive action in ES that screws up the short term trader for the snapbacks both ways likely to continue until the CTi2 enters the fray and the path of least resistance becomes established in an initiative manner which is likely lower once 1253 gives way on a Daily settlement basis and for higher I can't see a level to break...yet.. but suspect it has to be back above 1324-1332 Daily closing basis or 1382 on a Monthly closing basis

 

This goes a little further than the pure scope of your question but hope it helps and no doubt will spawn loads more thoughts and questions. lol. Ask away.

[alleyb 10]

I am new to this site. I also use tradestation, but wondered if you know whether market profile software can be adapted to tradestation charting.

 

thanks

 

there are a few add ins that various people provide mostly expensive imho and mostly again imho either too complicated in their output or just plain useless. I have been looking for an eld programmer for some time who wants to work WITH me rather than against me to produce what I believe should be the standard within Tradestaion. What is required is not that difficult to conceptulize but is mildly difficult to program. The issue is and no disrespect to the programmer community but certainly to the ones that I have met is that they wish to tell me the trader what I want to see output whereas what they want to create as a programmer incorporates what they think should be creating conflict of theory vs the real world that never seems to get together.? Now I've said that let's hope someone who genuinely wants to work WITH me will prove my experience of programmers wrong.

 

To recap there are MP Tradestation add-ons but none that I would want to use

[Guest forsearch]

alleyB,

 

What about so-called "tick volume" in spot or institutional FX. Do FX desk traders at the bourses actually use any of this "volume" (which is only based on bid/ask changes)?

 

Give a look at this post to see what all the fuss is about....

 

[thread=4227]Thoughts on Forex Volume[/thread]

 

Thanks,

-fs

[Karish 10]

alleyB,

 

Thanks for the educating insight on volume classification, can you pls elaborate, if possible, how to infer from the tape / volume distribution the kind of trader e.g. CTI2, CTI4 etc. that was involve in the trade

Thanks

[alleyb 10]

Karish. CTi2 operate early in the day and CTi4 later

 

ForSearch. Tic volume has in all studies since the early 1980s been a good correlation for actual volume. Don Jones of cisco-futures did some studies that came out with 95% correlation, in my own I have found closer to 97%. The question to answer with FX is not necessarily the absolute volume but the pattern of the Profile and the pattern of the Tic Volume Histogram. In all studies speed is the essence as to how anxious the market is to cover/acquire a position. Again its not necessarily about how many lifted off the offer.... for taking of the offer is not necessarily always buyers. Think laterally and deeply about this statement. It is a good proxy but is not infallible. A good example may come this week with all the CBs announcements. Watch, observe, make notes, print out the charts and then ask questions.

[ammo 10]

when a chart forms a ledge,in otherwords a flat top or bottom price with 3 or 4 ,1/2 hour stops at one price,that represents a large seller or buyer,on the mp chart that would be a pennant shape or boob shape where the top we'lll say ,is flat, and the bottom is a normal shape,looks like a boob with the top cut off,that means there is a large offer that will get taken out later in the day,traders can sell all day knowing that they can buy back at that price as long as that large offer is not filled,often times that offer represents a large house holding the price down so they can accumulate,when they meet there goal,they pull the large offer and the mrkt makes a new high,same scenario on the downside,these ledges are SELDOM there at the end of the day,its an indication that we will go higher if its at the top of your profile and lower if its at the bottom,there can be a few prices above or below,2 or 3,before it starts forming.those big orders usually dont come in until after the first regular hour of trading,seldom does not mean always,use disciplne

[mike_ITL 10]

Thank you for your impressive post, Alex.

 

Now I'm a little bit more confused, but I know what to work on.

 

Will try to elaborate and understand your post in the next few days.

 

Thank you again!

 

Mike

[Northern boy 10]

wait until at LEAST 40,000 contracts trade on ES at a single price before you can expect a potential breakout. -Dogpile

 

 

i've been looking to find a way to estimate trading range durations as well, only in the equities market. At first i was considering it based on time, from 30 to 60 minutes. On this premise, my wild idea was that there was an average lapse of time before an economic event took place to shift the market.

 

on the premise of volume... i was considering that the dominant trader of the equity (or future), would contain the market with the ol' bid/offer fake for a set amount of volume required to establish his position, before he flips his bid/ask and sends everyone screaming.

 

But on the futures, 40,000 contracts controlled with bid/ask pressure to establish a position would assume one hell of a boat load... too much for day trading for anyone. So maybe it's to set up a longer term position?

 

 

Anyway point is I like to know why, and I don't make a move until there's theory behind the practice... otherwise it's just data mining imo.

[ammo 10]

the truth is that you will likely never find those numbers and if you do you should be looking for several scenarios,akin to an nfl playbook,you know they are going to try and score ,you just don't know how,and they are smart enough to not tip there hand,from your home or office the amount of info you have on whats really going on wouldn't fill a thimble,so you need to trade the smaller or larger trend moves and try to time your entries,they have spent decades hiding the info you seek

[mike_ITL 10]

Alex, I didn't manage to find your MP101 and MP102 presentations at http://www.hotcomm.com/virmeetCID_EVENTARCHIVE.asp?CID=YMDZYQ

 

Could you please provide the links to access your webinars ?

 

Thank you,

 

Mike

[thrunner 10]

Alex, I didn't manage to find your MP101 and MP102 presentations at http://www.hotcomm.com/virmeetCID_EVENTARCHIVE.asp?CID=YMDZYQ

Could you please provide the links to access your webinars ? Thank you, Mike

http://www.traderslaboratory.com/forums/f6/market-profile-education-resources-376.html