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Soultrader

[MP] Trading with Market Profile

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Why in heaven's name, with all the computing power we have, doesn't someone use REAL statistics to compute the value area? And why am I the only one who seems to think this would be a good idea?

 

I pretty much agree. I think you have to put MP into context though. There really hasn't been much evolution of these ideas IMO. I mean in the late 80s the TPO way of viewing things would have been the only way possible as real time volume at price info I assume was just not available and the current way of doing things was just what was possible back in the day computing power wise. There is an incredible amount of stuff to explore here but your going to be pretty much on your own and charting new territory(no pun intended:)

Here is a chart based off volume POC/value area as opposed to TPO for YM.

For my style today is just a mess. I probly won't do anything unless we auction down to that 650 area with the two volume peaks lined up.

ymess.png.0e0d3c3c1b6d552d4204f58de6dbf5b9.png

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I have a statistics question regarding MP. If you read appendix 1 of Dalton's book (MoM), he gives the method for calculating the value area. To my surprise, there's nothing statistical about it at all. His claims of the VA being "roughly" within one standard deviation are completely bogus. He has no clue what the standard deviation is, because there's no calculation of variance whatsoever. He's simply adding up numbers. I've spoken to traders who use MP and they seem completely unconcerned about this charade. I know from statistics class that amateur approximations of statistical metrics are often wildly inaccurate. Why in heaven's name, with all the computing power we have, doesn't someone use REAL statistics to compute the value area? And why am I the only one who seems to think this would be a good idea?

 

Tasuki,

You will find a (almost) complete discussion of market statistics beginning with the thread [thread=1962], "Trading with Market Statistics" I. [/thread]. There are 11 threads in this series, describing in detail the proper way to compute the standard deviation, SD, and how to use the statistical data for entry and exit. Included in the series, are a quantitative description of the volume weighted average price, VWAP, the peak volume price, PVP, the skew, and how, along with the SD, a trade position can be executed with reasonable likelihood of success. Methods for scalping, position trading, and more complex trades at hold up prices, HUP, are also described.

Market statistics is a very complex subject, and I've tried to make it simple enough in the threads so that both new traders and expert traders would benefit from a proper description.

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Expecting another tough day on Wall Street and my bias remains short. Below is a market profile chart of the Nikkei futures contract. Nikkei reacted negatively as expected on yesterdays US market decline with a gap down of over 350yen. "D" period broke out of the initial balance to the upside and appeared to show optimism. However, as soon as the afternoon session began (H period) the markets gapped lower and extended the range in the opposite direction.

 

This price action here is showing extreme pessimism.

 

attachment.php?attachmentid=4765&stc=1&d=1200474492

 

For a more clearer view for non-MP users, below is a 5min candlestick chart of todays Nikkei action.

 

attachment.php?attachmentid=4766&stc=1&d=1200474524

 

Opening Types

 

I wanted to cover two opening types in todays example. The first opening type is the open-drive in which the markets express strong confidence from the open and trends for the rest of the day. The opening price will usually be the low or high of the day. Also, once price breaks out of the initial balance we are less likely to see price return inside of the IB. Hence, there is strong buying/selling confidence expressed.

 

The second type of opening is when the markets express mediocre confidence. Price will usually fall back into the initial balance once it breaks out before going in the direction of the initial trend. These are the days when one is uncertain if the rejection above/below the initial balance will force the markets to reverse and extend the range in the opposite direction or not.

 

One way for me to play these IB rejection patterns is to plot a midpoint of the initial balance. The chart below shows the 60min high/low (blue line) and midpoint (redline).

 

attachment.php?attachmentid=4767&stc=1&d=1200474891

 

If mediocre optimism still exists, price is likely to fall back into the initial balance before lifting to the upside again. This is where I use the midpoint as a potential support area. If price holds above the midpoint, we are likely to attempt another range extension to the upside. If price falls below the midpoint, we are likely to extend the range in the opposite direction.

 

In the chart above, the first attempt holds at the midpoint before another rejection causing price to drop below the midpoint and extend the range in the opposite direction.

 

This concept is similar to the value area rule in which price will often test the other value area extreme once rejected above/below value.

 

When playing the midpoint, it is good to have two sets of potential exit points. The two sets should be in expectation of a normal day or a normal variation day. In the chart above, an expectation of a normal day would be 0.5 times the distance of the IB to the upside. While a normal variation day would be double the initial balance to the upside.

 

The same concept applies when price falls below the midpoint. A range extension will usually be 0.5 times or double the initial balance.

 

Lets take another example from yesterdays YM market profile.

 

attachment.php?attachmentid=4768&stc=1&d=1200475333

 

You can then project potential exit points.

 

attachment.php?attachmentid=4769&stc=1&d=1200475871

 

Just a simple technique I wanted to share to determine the direction of a potential range extension.

5aa70e3377635_Jan.162008NikkeiMPChart1.jpg.ae80913ee4b5f86895e23660a172dcb4.jpg

5aa70e337d7c7_Jan.162008NikkeiChart1.jpg.0782c39e0a707d545962fedcbb118df2.jpg

5aa70e33861aa_Jan.162008NikkeiChart2.jpg.7373e29473858474cce8a3ed4ce2000e.jpg

5aa70e338d21e_Jan.162008YMMPChart1.jpg.41845cd2dbad71293788f51db582b079.jpg

5aa70e33949e8_Jan.162008YMMPChart2.jpg.130ff75577a12db2db377012d2f2a5bc.jpg

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Quick update due to interesting premarket action. Im still looking for a potential short setup near the VAL pivot point.

 

Chart below shows market profile chart and premarket resistance near this VAL level.

 

attachment.php?attachmentid=4770&stc=1&d=1200491736

 

attachment.php?attachmentid=4771&stc=1&d=1200491736

 

If any case YM breaks this level to the upside, I am looking for a possible rotation towards VAH where I will once again start looking for short setups.

 

Bias is currently short sided looking for possible lower value placement or lower/overlapping placement.

5aa70e3399680_Jan.162008YMMPChart3.jpg.c3e932c335e81a00ebf8d46da19fb115.jpg

5aa70e339d4ea_Jan.162008YMChart1.jpg.1d31fb0fe6791cff48817fc2b3064ee9.jpg

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Excellent charts and analysis SoulTrader, much food for thought and development of strategies/tactics around the concepts outlined,

 

Thank you monad. Just doing my best to contribute :)

 

Below shows short trade from todays session. I initially tried to short at the open but TICKS were still positive and price went on to rally over 70pts swiftly.

 

Short entry was when price was rejected within previous day value and droppped below VAL. Reason again is my initial bias of lower or overlapping to lower value placement.

 

attachment.php?attachmentid=4773&stc=1&d=1200496193

 

attachment.php?attachmentid=4774&stc=1&d=1200496193

 

It appears to be a open-test drive. Test upwards for supply which met with selling pressure and then rejection back down below value. Will post eixts later.

5aa70e33a8852_Jan.162008YMShortTrade.jpg.74ed2c4e32d4e701cbad98d46717926b.jpg

5aa70e33ac65a_Jan.162008YMShortTradeMP.jpg.cc52b47f2d657f09b1e35d309c10b2b2.jpg

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Update:

 

Below chart shows exits based on market profile. I am taking profits before the 1/15 low as it may take some force to extend price below this pivot.

 

Also using half the IB range as a target point using a normal day in mind. (normal day= IB range extension approx half of the IB range)

 

Further explanation on this short trade can be found on my premarket analysis video here.

 

attachment.php?attachmentid=4775&stc=1&d=1200498998

 

attachment.php?attachmentid=4776&stc=1&d=1200498998

5aa70e33b147c_Jan.162008YMShortTradeExitFull.jpg.363507fe9adc18259240ce8e1b766065.jpg

5aa70e33b8457_Jan.162008YMShortTradeExitFullMP.jpg.4ff0be943eb03f84ef4e7ef3cdb884bc.jpg

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Once again great trade and analysis Soultrader, however unable to view the video, a message for permission flashes up.

 

Is the exit strategy applicable only to YM or can it be applied to other indices i.e ES, Dax futures etc.

 

Also it is of interest to note that the trade you outlined conforms to the concepts on Taylor Trading by Dogpile (his modified version) i.e if you put up daily pivots on YM 15min chart , it is around 12484, the market gaps down to that, Dogpile's method would indicate a long to the 20ema (around 12583) followed by a short.

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Once again great trade and analysis Soultrader, however unable to view the video, a message for permission flashes up.

 

Is the exit strategy applicable only to YM or can it be applied to other indices i.e ES, Dax futures etc.

 

Also it is of interest to note that the trade you outlined conforms to the concepts on Taylor Trading by Dogpile (his modified version) i.e if you put up daily pivots on YM 15min chart , it is around 12484, the market gaps down to that, Dogpile's method would indicate a long to the 20ema (around 12583) followed by a short.

 

Very interesting monad. I am not familiar at all with the Taylor Trading Technique but always interests me to know areas of confluence using different methodologies.

 

Regarding the exit strategy, it is one that I use for both the YM and Nikkei. I actually never looked at the Dax and I do not trade the ES so will not be able to confirm it. But I wouldnt be surprised if this technique can be applied to any index futures contract.

 

Regarding the video, I moved it over in the premium forums. I will make another one for tomorrow and will post it in this thread.

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Heres another short setup. Perhaps this belongs in the VSA thread as it is based on a test of the high on lower volume. But at the same time the main concept is for price to remain in the current value area.

 

Notice that the developing value area is overlapping to lower compared to the previous day. This time my exits will be targetted above the developing POC around 12510-12520.

 

attachment.php?attachmentid=4778&stc=1&d=1200506171

 

attachment.php?attachmentid=4777&stc=1&d=1200506171

 

Update

 

Final exit at 12520 as planned. 3am here now and about to get some sleep. Chart shows my final exit. Good trading all and good night. :sleep:

 

attachment.php?attachmentid=4780&stc=1&d=1200507528

5aa70e33bcce5_Jan.162008YMShortTrade3.jpg.5b7569eca7cb739d198741643d47a8be.jpg

5aa70e33c16e3_Jan.162008YMShortTrade3MP.jpg.ccb8ab1172ee12be05c5068e87d3e6cb.jpg

5aa70e33c7348_Jan.162008YMShortTrade3Exit.jpg.93a2acd0a3112f74c8e59bfb9960f1c1.jpg

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The return to value area is indeed the main concept Soultrader on this trade, the rise in price on low volume is incidental, as the volume normally drops off during lunch period in NY,

 

Look forward to your charts tomorrow,

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The return to value area is indeed the main concept Soultrader on this trade, the rise in price on low volume is incidental, as the volume normally drops off during lunch period in NY,

 

Look forward to your charts tomorrow,

 

Yes, very good way of seeing it. The strategy here was definitely for price to return to value. It seems like price did extend the IB to the upside further before being rejected at VAH and dropping inside of the IB. (quite surprising to see that)

 

Chart below shows final profile for 1/16/08. Profile shows a Neutral Day in which buyers and sellers exits below and above the initial balance. Hence, you will see range extension on both ends with little net change at the end of the day.

 

attachment.php?attachmentid=4785&stc=1&d=1200532122

 

A neutral day tends to be followed by a neutral day. Also note the TPO count at 68 vs 24 favoring sellers. Asian markets are still pretty choppy at the moment and unclear. Although a range can be expected, I will post some more charts when things become more clearer.

 

attachment.php?attachmentid=4786&stc=1&d=1200532328

5aa70e33cc004_Jan.162008YMNeutralDay.jpg.654b2eaf7e66099d9da952ce60b093ca.jpg

5aa70e33cfda9_Jan.162008YMNeutralDay2.jpg.958c4d1ee989e8168cb4ab057fc6be97.jpg

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Thanks for your very insightful posts James!

 

Some simple questions:

do you pay any attention to the volume profile, MP and VP look very similar most of the time anyway.

Are VAH and VAL derived from MP or VP, differences should be subtle.

 

Just asking because I'm thinking of doing my own MP, but not sure if and when that will happen and MP is a lot easier to do than VP.

The effort would be worth it though.

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Thanks for your very insightful posts James!

 

Some simple questions:

do you pay any attention to the volume profile, MP and VP look very similar most of the time anyway.

Are VAH and VAL derived from MP or VP, differences should be subtle.

 

Just asking because I'm thinking of doing my own MP, but not sure if and when that will happen and MP is a lot easier to do than VP.

The effort would be worth it though.

 

I have used VP in the past but have found MP to be more useful in my trading. Every comment I make on VAL, VAH, POC, etc.. is all based on market profile and not volume profile.

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I think volume vs time profiles depends on what kind of trading your looking to do. I think volume is probly better for faster trades and smaller moves and time better for bigger moves with staying in the market longer. Ninja has a decent volume profile for free but its a pain because it resets if you add or alter the chart at all.

I think it will be interesting to see if we stay range bound for awhile and fill in the double distribution from yesterdays volume profile to create a more normal looking 2 day distribution. Vwap finished almost dead center in the middle of the valley in the volume profile.

ym1-17pre.png.87f4ba24241a7e45c2906f418529a285.png

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Yes great video,

could you elaborate on the logic behind the expectation of another neutral day following a neutral day.

 

I believe Steidlmayer mentioned this somewhere in his book but makes sense to me. We have range extension on both ends indicating that the big money (other timeframe traders) are expressing contradicting opinions. In other words the force of buying and selling is balanced. This shows that the markets (which moves only by big money) is still in the decision making process. So what will alter one side to step off so the buying/selling can push price out of value? Most likely good reaction by global markets or anything fundamental such as good earnings by a reputable company, interest rates, economic numbers, etc...

 

Hence from a technical standpoint, unless these events occur I assume a rangebound day. Not always a neutral day but if I assume for it to be a neutral day, I can implement strategies such as responsive selling above value (or IB) or responsive buying below value (or IB). The tug of war is basically neutral. Something needs to break this force to make it one-sided.

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Soultrader, thanks for the informative post and great video. It really helps a new MP'er to see the analysis done by someone using MP in their trading.

 

A few quick questions:

I am guessing that you mainly analyze the Nikkie and YM markets?

Do you find strong correlation between the 2?

Any specific reason the YM over the ES?

Are you just looking for a few trades a day based on MP?

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Soultrader, thanks for the informative post and great video. It really helps a new MP'er to see the analysis done by someone using MP in their trading.

 

A few quick questions:

I am guessing that you mainly analyze the Nikkie and YM markets?

Do you find strong correlation between the 2?

Any specific reason the YM over the ES?

Are you just looking for a few trades a day based on MP?

 

Hi 404,

 

There is definitely an interesting correlation between the Nikkei and YM. Strong at times but because the Nikkei here is not a 24 hour market, gaps occur and I am unable to take advantage of the correlation. Therefore, I use the Nikkei reaction to trade the YM.

 

The reason I trade YM is simply because I am familiar with it.

 

Also with MP, I look for 1-2 trades a day. Over 3 will beovertrading in my style of trade.

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Hi SoulTrader,

 

I've enjoyed your posts. Please keep it up.

 

Can you please comment on today's profile 1/17. It had quite a wide IB, so I was anticipating a Normal day to the downside. However, it eventually turned into a trend day.

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Hi SoulTrader,

 

I've enjoyed your posts. Please keep it up.

 

Can you please comment on today's profile 1/17. It had quite a wide IB, so I was anticipating a Normal day to the downside. However, it eventually turned into a trend day.

 

Yes, my analysis for 1/17/08 was quite wrong. TICKS was extremely weak to the upside making it very risky for any long sided trades. (I dont stay up into the afternoon often due to the time difference) I had one trade at 12408 on the long side which turned out horrible as I watched price jump 40pts in my favor and then getting stopped out at break even. I guess I was too optimistic.

 

Below shows my trade:

 

attachment.php?attachmentid=4801&stc=1&d=1200625245

 

Below shows a few mp explanations:

 

attachment.php?attachmentid=4802&stc=1&d=1200625296

 

attachment.php?attachmentid=4803&stc=1&d=1200625296

 

So what to expect today?

 

My analysis for January 17, 2008 was in expectation of a rangebound day. However, TICKS were trading mainly below the zero line throughout the entire morning session hinting extreme weakness and it turned out to be a trend day. Quite interesting.

 

We can expect to see the markets take a breather after a trend day. Hence, will look to play within value. 12190 - 12420 are rough figures of the VAH, VAL extremes and will be focused on these levels as well as the previous day low.

 

Asian markets as I write this is in a complete range with absolutely no movement.

 

attachment.php?attachmentid=4804&stc=1&d=1200625569

 

I mentioned before that I try to hold a macro view using market profile and using internals to confirm that view. Thus having an understanding of market internals is critical in my opinion. TICKS definitely did not confirm price action to remain inside of 1/16/08 range or value.

 

Will post an update if I find something new.

5aa70e3461fed_Jan.172008YMLong.jpg.61c3aeea27abe0f6630f93e20448b3da.jpg

5aa70e3468d47_Jan.172008YMChart1.thumb.jpg.591cd44c2cdebb739a7878863c4dec97.jpg

5aa70e346e4ad_Jan.172008YMChart2.jpg.7ae32fcf44ddef7564db7bada73a82bd.jpg

5aa70e34725c3_Jan.172008Nikkei.jpg.67fbb835c5021a7277bf5a8e30fc73d9.jpg

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Upate for January 18, 2008

 

WOW Nikkei! After a dead morning session, afternoon session gapped up and took off. This optimism comes after the downtrend day in the US markets. I havent seen such a big rally on the Nikkie in quite some time.

 

Will look for this positivity to be transferred into the US markets and will be looking for long setups for today. Previous analysis mentioned a possible rangebound day. However, I am looking for a potential rotation back into the 1/15 - 1/16 value area.

 

Video can be view here.

 

attachment.php?attachmentid=4805&stc=1&d=1200634070

5aa70e3478614_Jan.172008NikkeiWow.thumb.jpg.cdc4e6b4fd7b8e309762a58dff0aa3a0.jpg

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Soultrader, if I may, we all have gone through the experience of market going in our favour, then sit there and see the trade get stopped out. As Mark Douglas puts it sometimes our bias of a target blinds us to the info. market is giving us.

 

I have learnt via Wyckoff and Dbphoenix to make use of Support/resistance from the left, now in that respect, although now it is hindsight observation but perhaps something to keep in mind , there was a pivot low at 12450 between 3-4p.m on your chart and the take out of that level via that wide range downbar (prior to your red arrow) on huge volume would appreciate an effort to fall, which is normally followed by some short covering (profit taking) rather than real buying effort and also the 12450 support having been broken so decisively would now represent a resistance level (breaking the ice in Wyckoff Jargon)

 

my 2 cents worth:)

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Japanese Prime Minister Shigeru Ishiba announced plans to appeal directly to Washington and push for tariff relief, following the US administration’s decision to impose a blanket 24% tariff on Japanese imports. He aims to visit the US soon to present Japan’s case as a fair trade partner.   In Taiwan, President Lai Ching-te said his administration would work closely with Washington to remove trade barriers and increase purchases of American goods in an effort to reduce the bilateral trade deficit. The island's defence ministry has also submitted a new list of US military procurements to highlight its strategic partnership.   Economists and strategists are warning of deeper economic consequences. Ronald Temple, chief market strategist at Lazard, said the scale and speed of these tariffs could result in far more severe damage than previously anticipated. ‘This isn’t just a bilateral conflict anymore — more countries are likely to respond in the coming weeks,’ he noted.   Analysts at Barclays cautioned that smaller Asian economies, such as Singapore and South Korea, may face challenges in negotiating with Washington and are already adjusting their economic growth forecasts downward in response to the unfolding trade crisis.           Oil Prices Sink on Demand Concerns   Crude oil continued its sharp slide on Monday, driven by recession fears and weakened global demand. Brent fell 3.9% to $63.04 a barrel, while WTI plunged over 4% to $59.49—both benchmarks marking weekly losses exceeding 10%. Analysts say inflationary pressures and slowing economic activity may drag demand down, even though energy imports were excluded from the latest round of tariffs.   Vandana Hari of Vanda Insights noted, ‘The market is struggling to find a bottom. Until there’s a clear signal from Trump that calms recession fears, crude prices will remain under pressure.’   OPEC+ Adds Further Pressure with Output Hike   Bearish sentiment intensified after OPEC+ announced it would boost production by 411,000 barrels per day in May, far surpassing the expected 135,000 bpd. The alliance called on overproducing nations to submit compensation plans by April 15. Analysts fear this surprise move could undo years of supply discipline and weigh further on already fragile oil markets.   Global political risks also flared over the weekend. Iran rejected US proposals for direct nuclear negotiations and warned of potential military action. Meanwhile, Russia claimed fresh territorial gains in Ukraine’s Sumy region and ramped up attacks on surrounding areas—further darkening the outlook for markets.   Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Andria Pichidi HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
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