[MP] Trading with Market Profile

[MPTrader 10]

icic, so the first sign is decreasing orice but decreasing volume means it might eb a reversal taking place and u use MP to define where u shd be Long instead of short, eg at bottom of Previous Day VA ?

[MPTrader 10]

decreasing price, sorry typo error above

[Soultrader 12]

  MPTrader said:

icic, so the first sign is decreasing orice but decreasing volume means it might eb a reversal taking place and u use MP to define where u shd be Long instead of short, eg at bottom of Previous Day VA ?

 

.... I cant vouche for that because the setup itself is clearly discretionary. A lower low with diminishing volume would indicate supply running out. But it DOES NOT necessarily mean price will lift. If you do some research on what classifies as high volume on a specific timeframe for the market you choose, you may grasp a better idea of when it is representing short covering versus actual accumulation.

 

But as a reversal setup... what I showed above is pretty much the pattern I look for. On the KOSPI today, I did not take the reversal as the push through supply volume looked rather weak. (supply still left)

 

MP levels are just S&R levels that I watch. They are simply reference points.... and do not tell me whether to go short or long when price approaches them. What makes me decide to go long or short is how price reacts at these levels in comparison with volume.

[MPTrader 10]

ahh icic......

[namstrader 10]

I would like to share a chart showing how prices gravitate toward Market Profile recent POC's as targets for support and resistance. Shaded boxes are the daily VAH and VAL areas and each horizontal larger and smaller blue lines are all recent daily POC's. This is a 60minute 24hour chart of the YM contract. Many days I observe the blue line's being seeked as targets. There is a site that calls this VPOC or Virgin Point of Control that affirmed what I was seeing in my own studies before I came upon the site at Enthios. My visual helps me see likely price targets for the current day's trading.

[Soultrader 12]

Chart of JGB composite profile going back from beginning of 2008. Pretty interesting stuff.

 

 

[afl007 10]

Hi Friends,

 

I am new to Market Profile. While learn I find a POC (the longest line of TPO's) is not have the biggest volume on profile. Should a POC also have the biggest volume? What is the meaning when shorter TPO (which are not a POC) has biggest volume?

 

Thank you,

 

afl

[alleyb 10]

afl007 one could write reams on the subject but I suspect that you want the simple answer for I detect in your language something that suggests rule based or systematic approach to the trade.

Traditional MP structure was determined by the TPO and a histogram of tic volume. Tic volume has a very good correlation to actual volume and time spent at a price generates volume however afl007 you are correct to notice that there are times that the high TPO is not necessarily the high volume price. In a Normal Distribution it was always assumed that the two would coincide where as in reality they do not have to. In patterns that are not Normal Distributions there is a skew that becomes more pronounced as the pattern becomes more elongated and where there may very well be High Volume POC that are different from the TPO POC. There is a current fixation by the volume watchers as to X amount of volume being the POC on a given day whereas the reality is that it makes little difference whether 28k or 32k trade at a price. If the High Volume POC is close to the TPO POC it has little meaning and note that in many EU markets where there is a netting algorithm on the open that it is quite possible for the High Volume POC to occur at a distance from the TPO POC. All high volume represents is where the majority were satisfied at the price engendering so called Value and therefore Fair Price to both sides at that given moment and similarily the type of scenario that you have noticed represents a similar satisfaction. Please remember that the POC is not the place to initiate trade for it represents where your broker becomes rich and where you are allowed to scratch bad trade location. All I can suggest is do not get too fixatd by the High Volume POC but look at the larger picture of the distribution and ask the questions some of which are; where, what, how, in relation to, ....etc

[trader_74 10]

Hi every body

i was busy with reading the books "Mind over market" "markets in profile"

i spent long time in watching the profile.

i could say that i understand the structure,

but the problem is that i could not build my own strategy.

if some one can help me to build up a strategy.

How to expect the direction?

when i get in the trade?

where we can place the stop loss?

80% rule does not work fine with me.

thanks

 

 

thanks

[alleyb 10]

Trader 74

http://www.tradingclinic.com/oneoff/80rule.pdf here is the original definition of the 80% rule however like many things with MP it requires an updated definition and the updated definition according to me is that once value has been entered then the probability of getting to 80% of the opposite side of the value range is 80%. There are various "tricks" that one can additionally input depending on previous reference points.

 

If you trade value areas as support and resistance then you may get a scalp trade but in the majority of times if you have travelled right the way through value you will pop out the other side. When do value areas work well whereby you can buy the bottom and sell the top then the earlier in the opening range the more likely it will work but thereafter the less likely it will work. You have to understand when the market is in vertical or horizontal mode

As to how to build a strategy and expect direction then I initially refer you to my previous post.

Stop loss is about both risk management and money management where time is also input into the equation depending on trade location.

Frankly to answer your question could potentially take a several chapters to answer and again I repeat you seem to want a rule based approach and although there are certainly many potential rules for entry and exit including stops you have to start at the beginning by asking questions: EG where is the market in relation to previous reference points and what is it trying to do now. From this you can formulate a strategy undertanding that a vertical market has a completely different entry and exit style to a horizontal market.

Edited September 21, 2008 by alleyb
updated link

[trader_74 10]

Hi alleyb

thanks for your post,it was helpful

i will try to post a chart indicating how i am trading .

So you can give me your comment

[mohajer_101 10]

thanks very much

[flimbo 10]

Hi there,

i read several posts about MP but it seems that all are focused mainly for Stock and Commodities .

 

Does anybody using MP in FOREX ?

[sdoma 10]

  flimbo said:

Hi there,

i read several posts about MP but it seems that all are focused mainly for Stock and Commodities .

 

Does anybody using MP in FOREX ?

 

Oh yeah. Market Profile works no matter what market you use it for. Also, since you use TPO's, you don't necessarily need volume to trade it which actually makes it very good for forex.

 

I just labeled up a British Pound chart yesterday for 10/3/08. This is a future chart but it tracks the cash very closely. Prices opened within value and tested the nearest reference point - value and the three day low. Think about it, when it opens up and things are same old same old, there isn't really much money to be made. Traders will wait for it to lean one way or the other and jump in. And there is lots of money to be made when prices break a major intraday level and start to run. So, the market knows this and will usually test those nearby reference points. In any event, it traded a bit lower and tested, but couldn't find any more sellers and you saw a very nice rally.

 

These types of moves used to catch me by surprise all the time. I would have fought the rally. But now I understand this type of action, and it really is logical once you get it.

 

When you see this type of behavior, it sets up beautiful trades, and it stops a knee-jerk fading mentality since it makes you quantify your counterauction trades. Also, if you know you are traveling towards a major reference point like the previous day's high or low, the week's high or low, etc, you should NOT fade before you get to that point. If you play it at all, you should try and scalp it with that as a target.

 

Think about it this way: When a market is going down, that's because the dominant market participants think that whatever is being traded is too expensive. When it tests to a major high or low, it's seeing if people still think it's too expensive at that point, and they want to see what the broader market thinks as it approaches that major level and draws increasing amounts of attention and analysis. The answer is significant because those levels set the tone for the day or week or whatever.

 

So the market fell seeking answers, and found them. Don't predict, just go with the flow.

[Marsupilami 10]

Hello sdoma,

 

thanks for your post. Do you have a special method for getting in at the levels you described ( VSA, volume or anything the like) ? Where would you have gotten in in that

cable trade ?

 

Regards,

Mars

[flimbo 10]

Thanks Sdoma for deeper explanation.

[sdoma 10]

  Marsupilami said:

Hello sdoma,

 

thanks for your post. Do you have a special method for getting in at the levels you described ( VSA, volume or anything the like) ? Where would you have gotten in in that

cable trade ?

 

Regards,

Mars

 

There are several ways you could get in, and I'll show you two ways you could play this, just bear with me.

 

I don't look at levels as Support or Resistance per se. After all, you can lay any random horizontal line on a chart and it will look like S/R at points. Try it, it will blow your mind.

 

I consider important levels to be places where decisions are made by the hive mind we call the market. These levels are where the hive mind does a gut check: is this the appropriate thing to be doing? Are we overbought/sold now? Etc Etc. I think this is why so many people get rocked trading levels; they just fade the level or play for continuation in a robot-like manner.

 

Instead of beginning with one set entry, ask yourself: What are the range of possibilities you can reasonably, expect for the market at this level? Generally, at this price zone on the British Pound, prices could:

 

-Blow right through it and keep going down

 

-Turn on a dime and rocket up

 

-Stall and reverse

 

-Stall and continue

 

-Stall and consolidate, which includes fake-outs in either direction

 

I figure that if price roars right through the zone or reverses violently, I may or may not catch that movement. As batty as that can make me, I've come to accept that. There's plenty of money to be made without shooting from the hip.

 

The situations that yield more methodical trades with known entry or exit points are those where the market hits a level like this and stalls. This way, you have an idea where you are wrong, especially counter trend. If the market makes a new low, you're wrong, end of story, full stop, whatever.

 

I find VSA-like techniques and price action to be very useful for these types of scenarios, so the first chart I've attached is a combination of VSA and candlestick reading. On this chart, the horizontal red line is the three day low, and it's a five minute.

 

Candle one is a test of the level. Notice that you have a relatively wide range (44 ticks) and the volume is 957 contracts. As of yet you do not have enough information to act, but everything is relative and you need a baseline to relate to.

 

Candle two is a hammer candle. It closes on its low but does not break the low of the previous candle. It has an 18 tick range but traded 1134 contracts. This is noteworthy because it traded more size in less range relative to the previous candle. Not only did prices stall but we had participation.

 

Now, this info has biased me somewhat towards a reversal trade, but still isn't enough for me to act. After all, this could be an attempt at bottom fishing which gets overwhelmed in the next few minutes. The faders get it shoved in their faces, puke and prices rip to the downside. I want to see enough buying to push prices up past the wick of the hammer before I get in. After all, I know we are at a major level and if I'm right, this trade is going to pay me well, so I don't need to suck every red cent out of the move.

 

My potential entry is at the green line. If prices make a new low, my hypothesis is invalidated as Steenbarger would say. So, on this trade you'd want to risk a tick below the low of the hammer. There was a breakout on high volume which would have triggered the entry. As is common, you had a push back and then continuation.

 

Another entry would be to wait for that reversal and then buy a midpoint retracement, which would have gotten you in at a similar level, but that's IF you get the retracement. That's why I like the first entry better. I hope this helps, and ask any questions you want.

[afl007 10]

Hello,

 

I am sorry if I am asking a silly question again.

Can you please show me an example how to trade daily using last month profile?

The profile I have only show VAH, POC, VAL +Buy/Sell tails.

What any components I should have?

Thanks in advance,

 

afl007

[sdoma 10]

  afl007 said:

Can you please show me an example how to trade daily using last month profile?

The profile I have only show VAH, POC, VAL +Buy/Sell tails.

What any components I should have?

Thanks in advance,

 

afl007

 

What market is that in your screen shot?

[jebidaya 10]

In Mind Over Markets, Dalton discusses "Identifying Timeframe Transition" as a way to determine who is in control or when control may be shifting...from buyers to sellers. This is of particular interest to me on Normal days where I might be selling the UVL (upper value level) in hopes of returning to the LVL. I understand the logic yet in determining who's in control takes time and I use a 5m timeframe. By the time the Volume profile presents the results, ie, buyers have disappeared, sellers are in control, the trade is already fully on it's way to the other extreme. Is there a way to determine quickly Dalton's idea of timeframe transition earlier for shorter timeframe traders?

[ckait 10]

here is one example, if the market goes through the daily balance area high and extension is made on good volume, new longer term buyers are present in most cases. If price had been rejected as it moved higher there would have been no new longer term buyers, maybe longer tem sellers. Bottom line is for the market to leave value it takes longer tieframe participiants to move it. The catch is like everything else there is no way to know ahead of time if they are there or not (to my knowledge anyway) you trading strategy should have a way to deal either senario.

[ckait 10]

After reading your post again I guess I didnt really answer your question, you need to have some way to read orderflow as price moves into the area in witch you want to trade. I use price/volume action and delta to decide if im going too fade a top or go with a breakout. A little VSA never hurts either ultra high volume up bars into resistance are great places to put a trade on same on the lows.

[jebidaya 10]

I do that as well, yet take the S&P mini today, where we opened w/ a gap down and rotated up. Since we opened below the previous day's value area I was looking for short setups initially. What told you to change that bias and ultimately look for longs? Picture is attached, disregard prev day's LVL at 868.25. It shifted at close of day and not accurate with previous day's value.

Edited December 12, 2008 by jebidaya

[ckait 10]

The initial balance had strong upward bias so i was taking longs on a pullback to ths poc in e period

[Hlm 10]

Today we had three Value Areas we were potentially dealing with:

 

819.25 829.75 852.75

855.50 863.50 872.50

888.25 898.25 903.75

 

Yes, we opened well below today's value area and inside the one that was created on 12/5. However, look at that bar on the open. Right at the beginning there was signs of no interest inside that value area and we went right into the next one up. It's very important to look back to previous areas when we are so far away from the current one. It's always nice to have the Volume By Price Histogram up as well so you can see the type of distribution you are working with.