[MP] Trading with Market Profile

[Soultrader 12]

Below is a chart of todays profile from January 7, 2008. I also did a video during the Asian market hours on the YM analysis. For those that missed it, visit here: YM and Nikkei Analysis.

 

I mentioned in the video a possibility of a normal day on the Nikkei with a wide initial balance. Towards the close, the Nikkei sold off sharply to close below the initial balance. This was quite bearish.

 

 

Normal Day

 

Normal day characteristics include early presence of longer timeframe participants. This is indicated by the morning sell-off on the YM. This creates a wide initial balance. This results in two-sided trading between the longer timeframe buyer and seller between the two extremes. - Definition from Dalton - (Steidlmayer has a different description of normal days)

 

If market profile is not of interest, I would advise that every trader at least know the type of days. There are only 5 of them and not hard to remember but will give you a 2 step lead over other traders. Knowing the type of day early in the trading session allows one to apply favorable strategies.

 

Markets generate hints and clues tick by tick. The "b" shaped profile on 1/04/08 with lower value placement indicated long liquidation and odds favored the markets to be stuck in this newly developed value area. Hence, we have overlapping to slightly lower value placement for 1/07/08.

 

The next piece of key information is the two-sided trading that occured today after a wide initial balance. Is selling gradually being cut-off in the short run? Or is the markets taking a breather before the big boys start dumping again?

[404 10]

I just got my copy of Mind Over Markets today in the mail today and will start reading in tonight.

 

Any tips as I embark on learning the MP methods? (Do's and Dont's looking back on how you learned MP?)

[Soultrader 12]

I just got my copy of Mind Over Markets today in the mail today and will start reading in tonight.

 

Any tips as I embark on learning the MP methods? (Do's and Dont's looking back on how you learned MP?)

 

Hmmm, hard to say. You really need to absorb the concepts and study profile types carefully. Once you become experienced at it, move on to profile pattern recognition and try to understand the type of day as the opening hour develops. The faster you understand what type of profile the markets are likely to develope, the faster you will be able to fully comprehend market profile.

 

Make note cards for profile days and learn it by heart. Day types should become a natural process. Then focus on the bigger picture and understand who is involved. The market leaves clues day by day.... market profile is a tool that can help you understand the markets one piece at a time.

[gassah 10]

Here's an MP file from the TS forum that doesn't plot the POC.

 

nic

 

On top of the above lettering system (SPY 15m) is 1st-tradingtools.com's Volume at Price Histogram. I haven't been happy with their traditional based letter profile and prefer the free one I attached earlier.

 

The letters and magenta line (value) are from the above free .eld and the histogram is from 1st-tradingtools. The red lines are value and the yellow is the Volume-at-Price POC. It also comes with a touches-at-price POC.

 

nic

[darthtrader 10]

Great video James. That 950 area is definitely a key area IMO too. Just had a nice test and rejection of it.

Here is a 5 day volume composite of YM. Up above 950 there is virtually no volume until 13075 or so. Another interesting thing IMO is if we auction down to the bottom of that volume range, the lower part is pretty ledgy. Could be a good place to look for a breakout down.

One thing with marketdelta that is really starting to sell me is the black lines on the bars are at what price the most volume traded for that bar. It makes it very easy to see during a move if the market is facilitating trade at higher/lower prices or not.

[darthtrader 10]

James, any chance you could make a video on how you use the internals with MP? Something I'm starting to find very interesting is to look at the skew of $tick. Here is the battle point at 950 right now with massive positive skew on $tick. Not sure how to use this info right yet. I guess its possible the market has used up all its firepower to get up to 950 and will get rejected.The only problem with that i soppose is I've noticed on a balancing day tick is pretty even and on a trend day it has massive skew.

Edited January 8, 2008 by darthtrader

[Soultrader 12]

James, any chance you could make a video on how you use the internals with MP? Something I'm starting to find very interesting is to look at the skew of $tick. Here is the battle point at 950 right now with massive positive skew on $tick. Not sure how to use this info right yet. I guess its possible the market has used up all its firepower to get up to 950 and will get rejected.The only problem with that i soppose is I've noticed on a balancing day tick is pretty even and on a trend day it has massive skew.

 

Hi darthtrader,

 

Ill throw something up in real-time if possible tomorrow. I dont use much tools anymore as I use a naked 10min chart with mp only. But I do look at the TICKS so perhaps I can throw something insightful using the TICK. I did pour over Jerry's threads a while back and backtested many of his ideas on the Nikkei 225. However, I didnt have much success. Perhaps I didnt know how to apply his methodology correctly. Thus, I dont feel qualified to even get into the skew. :bad idea:

 

950 ended being pretty much the dead high of the day. Very interesting indeed.

 

 

Todays profile resembles that of a normal day but the range extension downwards is quite large. TPO count currently favors buyers. Once the Asian markets open, I will post a few more posts and videos.

[Soultrader 12]

Upate:

 

Yesterdays afternoon sell-off on the YM extended the range to create a double distribution trend day. Below is todays morning session Nikkei market profile.

 

Notice the back to back 2 day profile which shows a Normal Variation Day. For reminders a normal variation day is a profile in which the range extension is double that of the initial balance.

 

 

What is particulary interesting is the fact that range extension occurred both to the upside above the Initial Balance. Also note that TPO count favored buyers on 1/08 as well as 1/09. Longer term participants are willing to extend the range upside. This may indicate a potential short term support area.

 

Now, taking a look at the Dow.... we are seeing a key support area around 12600-12650.

 

 

What I am sensing is a short term bounce upwards based purely on technicals. Will be interesting to see the results.

[darthtrader 10]

Hi darthtrader,

Thus, I dont feel qualified to even get into the skew. :bad idea:

 

Well I don't mean skew like the volume stuff in Jerry's thread. Brett Steenbarger has alot on his blog about little tweaks he does to $tick. He keeps a cumulative tick as a long range sentiment indicator but I would think knowing if the cumulative tick is positive, flat or negative and how its changing intraday would be a nice guage as far as how the cash market is developing.

I've been also looking at getting into neoticker eventually. I know it can build its own custom version of the $tick. I would think a custom tick of only the Dow 30 would be pretty deadly for YM.

[Soultrader 12]

Well I don't mean skew like the volume stuff in Jerry's thread. Brett Steenbarger has alot on his blog about little tweaks he does to $tick. He keeps a cumulative tick as a long range sentiment indicator but I would think knowing if the cumulative tick is positive, flat or negative and how its changing intraday would be a nice guage as far as how the cash market is developing.

I've been also looking at getting into neoticker eventually. I know it can build its own custom version of the $tick. I would think a custom tick of only the Dow 30 would be pretty deadly for YM.

 

Yea, Steenbarger seems to like to talk about the cummulative TICK. I actually made one for the Nikkei 225 before. For the Dow.... isnt it just the $TIKI?

[Soultrader 12]

The YM ended up holding at the critical 12600-12650 mark. Market profile is a powerful trading tool as it allows one to read the language of the markets day by day. It offers clues to what may develop and allows a trader to paint out various scenarios.

 

Todays profile is that of a neutral day in which range extension exists on both ends. However, upside range extension in the late afternoon session represents victory by the bulls. Hence, what I am seeing is a short term lift ot the upside.

 

 

The chart below explains the day by day scenario over the past few sessions.

 

The first chart shows the key piece of information. On January 4, 2008 price gapped lower creating lower value placement with a "b" profile. This indicated long liquidation and that price would trade within this newly developed value area over the course of the next few sessions.

 

 

The second chart shows a normal day on January 7, 2008 with price pretty much contained within the initial balance. Sellers came in aggressively at the open but was met with equal demand. Price is balancing out in the short term.

 

 

On January 8, 2008 we had a double distribution trend day. However, value area was still overlapping the previous 2 value areas. Hence the importance to think in value area relative to price.

 

 

Finally on January 9, 2008 price went down to test the key support area before bouncing back up. Although value area is lower, there appears to be short term support. January 9 profile shows bull victory towards the close with range extension above the initial balance.

 

 

Just like VSA or any other technical tactic, it is important to be aware of the background. When comparing todays profile, one needs to take into account the past few sessions profile and the redefine what the market is telling you on a day by day basis. Will be interesting to see if price can bounce back up temporarily.

[james_gsx 16]

Lets say the market closed within the initial balance area, would you still take it as bullish if we still had the late rally?

[Soultrader 12]

Lets say the market closed within the initial balance area, would you still take it as bullish if we still had the late rally?

 

Depends on the profile. If price had extended the range downwards only but closed back inside the initial balance leaving a tail, I may view this as potential bullish support. On the other hand, if the range extension was to the upside only and a close inside the IB, I may view this as a potential caution for long sided trades.

[Tasuki 10]

 

If there is nothing that hints out any range extension, you can expect price to return to value.

 

To be a good market profile trader, I think one needs to have keen intuition on these slips.

 

Are you sensing diminishing demand and weakness?

 

 

Hinting, sensing, keen intuition???

 

What do these terms mean? What are you seeing in the TPO profile when something "hints" at range extension?

[Soultrader 12]

Hinting, sensing, keen intuition???

 

What do these terms mean? What are you seeing in the TPO profile when something "hints" at range extension?

 

Im assuming each trader has his own set of tools or analysis method to determine market direction. For example, if there is no fundamental reason for price to lift ouf of IB and into a new value area, I may decide to fade these moves. What I do is to watch global markets and their market profile charts respectively then watch internals as the US sessions opens. This allows me to get a feel of whether the YM is likely to move away from value or not. Its a method I picked up from my old trading boss.... approaching from a more macro view then narrowing it down to technicals.

[Soultrader 12]

Grabbed a short premarket on Friday show in my blog here. The reason behind this is simple. I am basing my trade ideas around market correlation and reaction of the US-Japan markes as well as reading market profile.

 

First, on 1/10 showin the chart below, the YM rallied to extend well above the initial balance. Previous few sessions before it had shown signs of diminishing supply.

 

 

This price action should of transferred over to the Nikkei the following day. However, on 1/11/08 auctioned lower regardless of optimism expressed in the US markets. This was a signal for further pessimism that had a chance of getting transferred back to the US markets for the 1/11/08 session.

 

 

When it became apparent that the Nikkei would most likely finish with lower value placement, I grabbed a short on the YM. Entries and exits with charts are shown in my blog.

 

On 1/11/08, YM rotated lower again creating a Normal Variation Day. Range extension was downwards approximately 2x the initial balance. Markets appear to not be ready to form value within the 1/10/08 value area. Hence, we are likely to continue to auction lower.

 

 

This market profile analysis can also be confirmed on the daily chart. Selling volume has significantly increased. I had mentioned that the 12600-12650 area may hold. With Fridays action, I am now sensing further movement lower.

 

Fridays profile: Normal Variation Day

Value Area: Overlapping to lower

Volume: Higher

Indication: Bearish

 

[Tasuki 10]

Im assuming each trader has his own set of tools or analysis method to determine market direction. For example, if there is no fundamental reason for price to lift ouf of IB and into a new value area, I may decide to fade these moves. What I do is to watch global markets and their market profile charts respectively then watch internals as the US sessions opens. This allows me to get a feel of whether the YM is likely to move away from value or not. Its a method I picked up from my old trading boss.... approaching from a more macro view then narrowing it down to technicals.

 

I'm just reading Mind Over Markets now, but I got the impression that Dalton is trying to use cues from the Market Profile itself to determine market direction, not market internals. I'm sure they will work too, but I'd love to hear how one can use the principles of MP itself to determine market direction. For example, I've just been reading about TPO count, and the Rotation Factor (you can tell I haven't gotten too far in the book yet). I thought these (and doubtless many other) methods were part and parcel of the tools that MP traders use. Am I reading this correctly?

[Soultrader 12]

I'm just reading Mind Over Markets now, but I got the impression that Dalton is trying to use cues from the Market Profile itself to determine market direction, not market internals. I'm sure they will work too, but I'd love to hear how one can use the principles of MP itself to determine market direction. For example, I've just been reading about TPO count, and the Rotation Factor (you can tell I haven't gotten too far in the book yet). I thought these (and doubtless many other) methods were part and parcel of the tools that MP traders use. Am I reading this correctly?

 

Youre right on track Tasuki. TPO counts is one of the ways a market profile trader can determine buyer vs seller control. What I have found more useful is just recognizing the profile types of the past few sessions, identifying who was in control through mp pattern recognition, identifying range extensions and tails, and identifying value area in comparison to the past few sessions. These aids me in short term market analysis. However, the analysis will constantly change with the developing profile, opening price, price action of global market, and any significant news.

[Mercury77 10]

First of all I want to say this is a geat thread. I am studying market profile (mind over markets) and I really like the concept of auction market theory. There was a great thread on elitetrader (there arent many on elite lol) by Bolter about the way he uses market profile in his trading. Maybe its worth to take a look. http://www.elitetrader.com/vb/showthread.php?s=&threadid=63202&perpage=40&pagenumber=1

[404 10]

First of all I want to say this is a geat thread. I am studying market profile (mind over markets) and I really like the concept of auction market theory. There was a great thread on elitetrader (there arent many on elite lol) by Bolter about the way he uses market profile in his trading. Maybe its worth to take a look. http://www.elitetrader.com/vb/showthread.php?s=&threadid=63202&perpage=40&pagenumber=1

 

Thanks for that link. Very good thread on how someone uses MP in his own way!

[Soultrader 12]

Okay Mondays action was quite unexpected with price rallying premarket and then forming value area in the upper range of 1/11/08 trading.

 

Here we have below the Nikkei 225 market profile chart as of 1:00pm Tokyo time. We are seeing a potential double distribution trend day or normal variation day down. Range extension is over double that of the initial balance and is likely to move value lower.

 

 

IB Range = 12 ticks

Normal Day = Range extension 6 ticks below IB low

Norma Variation Day = Range extension 12 ticks below IB low

 

 

What is interesting is to see the Nikkei extend lower despite the US rally on Monday. (Monday was national holiday in Japan so markets was closed) This price action does create a slight short bias for the day and will look for potential short opportunities on the YM.

 

 

Trade logs will be posted in my blog.

[james_gsx 16]

Do you have a short bias because of the big range extension?

[Soultrader 12]

Do you have a short bias because of the big range extension?

 

I have a short bias because Nikkei is auctioning lower despite yesterdays rally in the YM. Hence, my bias is for price to auction within the 2 day value area. I am not expecting price to lift above value. Also, check my blog for a short entry on YM.

[monad 10]

I have a short bias because Nikkei is auctioning lower despite yesterdays rally in the YM. Hence, my bias is for price to auction within the 2 day value area. I am not expecting price to lift above value. Also, check my blog for a short entry on YM.

 

Would appreciate a link to your blog.

[Tasuki 10]

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?