'Markets In Profile': Detailed Book Review

[Frank 10]

Today was good example of a market fitting into the framework I showed over the weekend. Thought I would share it for the concepts it shows.

 

1) 'Value Migration' -- Concept is to try to trade with 'value migration' until an auction has ended.

 

2) 'B to E' / 'L toP' Framework of a market choosing a direction and staying with it until the afternoon.

 

Friday saw 'value' form near 1390.75. Today, the market traded below the previous days value and below the previous days low. When value is migrating up on the higher timeframe (uptrend) and price is below recent value, the play is to look long (below value) and target a play back to previous value. You are getting asymmetric location because price is below value during an upward value migration.

 

Note also how the market made its low during the mornign (B-E) and its high during the afternoon (L-P). This was a very classic structure day.

 

 

Edited April 21, 2008 by Frank

[heretodaygone... 10]

Frank, can you explain why you chose the 40 sma? I've reread post 19 and I think you use it to approximate vwap but I just want to make sure. Thanks for the great thread.

[Frank 10]

  Quote

Frank, can you explain why you chose the 40 sma? I've reread post 19 and I think you use it to approximate vwap but I just want to make sure. Thanks for the great thread.

 

there is no magic with the 40 sma. I am using it only to 'represent' where current price has moved 'from' in order to gauge 'value migration.' It is being used as a 'reference point' to help guide me. As price and the moving average converge, you might say the current auction is 'aging' -- but not necessarily over. Remember, it's not over until you get a sign of 'excess.' I do not want to be looking for reversals ALL the time or else I would miss out on lots of good trades. The market will often auction one direction and then chop around while the moving average 'catches up' to current price. As this happens, you get closer to auction reversal and should be on the lookout for 'excess' -- as reviewed above. (also, note that occassionally -- the 'excess' signal is kind of grew -- using a moving average will act as a bit of a safety-net in case I missed the signal).

 

btw, 'vwap' measures todays average price. I never look at vwap for a period longer than current day. there might be use in such but I have not discovered such.

 

hope that helps a little bit,

 

frank

Edited April 21, 2008 by Frank

[winnie 10]

Frank., it is great ! I have watch the market today and looking for your setup, A-D looking for low ! it is just happen. However, I would ask you , in actual trading, how do you enter the trade , as B, C,D period all make new low, in real time, how do we actually know which one are the final low for the morning period ? Do you try to catch the low ,everytime the 30 minutes bar make new low ?

thanks.:pc guru:

[winnie 10]

Dear Frank,

what conclusion will you draw for tomorrow ?

Thanks for sharing your idea

[Frank 10]

hi winnie,

 

btw, in profile -- for whatever reason, the first 30-minutes is 'B period' (not A). also, there is no 'o-period' -- it goes straight from N to P. I can guess why but it doesn't really matter, I am just following 'their' etiquette.

 

 

ok, to fine-tune the entry, I use either a support level from past days or an oscillator pattern or an oscillator divergence. a little tape reading adds to the context.

 

today, I was looking to go long. but the 'fat' part of fridays profile was 1390.75 -- you can see this by watching the volume at price every day and recording the highest volume price. there was significant contract volume at 90.75 on Friday and we were under that today --- so this was a resistance level. it would be tough to go long too close to that level as that was your profit objective (buy below value, sell at/near value) so you wanted to wait for price to push down and then go long.

 

we pushed up right off the open and into 89.00 and reversed. As we pushed down, volume was weak --- which weakens the short-side argument and adds positive context to your original long-side gameplan.

 

just after 10:30am, a momentum-price divergence developed. price made a lower low while the 3/10 oscillator made a higher low. this is a well-known technical signal you should study. a divergence like this is a very short-term thing but you are just looking for a decent price to go long -- your real play is the market profile structure that you have analyzed.

 

the divergence occured and price tested up and then back down just as 'D-period' ended. Your expectation is that the low in D would hold. It traded down very slightly below this during the first minute of E. This is the kind of movement you just have to ride out. E is still a decent 'reversal zone' -- and it only violated the D-low for a brief moment in time. Sometimes, the market will continue to move against you there and you will have to figure a way out of your position. In this case, that low was the low for the day and price marched up until N-period, consistent with the structural bullish higher-timeframe bias.

 

note that the market ended up testing the previous days high volume price at ~1390.75 and finding resistance late in the day.

 

btw, I used a 800tick 24-hr chart here. I am watching the futures across many timeframes and usually time a divergence using either the 400-tick, 800-tick or 1600-tick charts. this part of trading, the very short-term nuances of entries, are very much a 'feel' thing.

 

[winnie 10]

Dear Frank,

Thank you for your detail explanation .

[winnie 10]

Dear Frank,

Do you have any idea in today 's market. Yesterday, I have strong feel that it will make new low first and high in afternoon. However today , I really don't have any idea. Just want to know how you think ?

Thanks

[Frank 10]

hi winnie, we had 'auction reversal' this morning.. I am expecting this to trend down until after 3pm...

 

here is a trick, yesterday we made high last and today we opened below yesterdays open. this is an auction-reversal signal (combination of a high close and open below previous opening price). this is a 'shock' gap and adds fuel to the fire as trapped longs have to sell when market breaks lower.

 

The first day of auction-reversal should be the most dynamic day. I have big short on... hoping for the best. we'll see.

Edited April 22, 2008 by Frank

[Frank 10]

note that the S&Ps made a low 3 mins before 3pm, this fits the 'L-P' model -- though it is more common for S&Ps to make a low after 3pm, 3 mins is close enough to call it 'afternoon low.' also, the profile did not 'elongate' to the downside. looks like this was a 'long liquidation' (inventory adjustment that may have completed) and not a lot of new selling (ie, an elongated profile -- which would imply continuation).

 

The market would still be 'expected' to violate todays low tomorrow. But tomorrow might be a day to go long if/when that happens.

[winnie 10]

Hi Frank,

 

Thank you for sharing !

it is very clear and you are so smart !:thumbs up:

[winnie 10]

Dear Frank,

According to your experience, could you trade everyday ? That mean everyday you could draw conclusion in the market ?

[Frank 10]

potential 'laggards are in' signal this morning.. selling tail in 'D period' on a penetration of previous day high. this occured into key 89.00 resistance.

 

could be 'excess high'

[winnie 10]

Dear Frank,

yes, the laggards are in signal this morning ! thank you. After today's close, the market seems to be "balanced". Do you mean we can buy low , sell high in this case ? Is there any trend now ?

Thank you Master !

[Frank 10]

Here is same material presented slightly differently.

 

Wednesday morning saw higher timeframe sellers come in Period-D. Remember that when you are above the previous days high, you should be looking for a potential B-E reversal. The market traded down on Wednesday and this selling spilled over into Thursday.

 

On Thursday, the market went below Wednesdays low in Period-D. The 60-min auction appeared to be down at the time. But below the previous days low and a reversal UP in periods B-E is a buy signal. Thus, you need to be on guard that the selling cycle that began on Wednesday (above Tuesdays high) could be over.

 

On Friday, you were in day 2 of a new value migration up. Below the high of Thursday is a long possibility if get a reversal UP in periods B-E. We did make a low in E and then proceeded to march up through previous days high.

 

Note that all 5 days this week made the intraday high or low in B-E and 4 of 5 didn't stop going that chosen direction until at least 'L-Period'. The market will tend to do this but don't expect it to happen every day like it did this week. Can expect generally 3+ of 5 days in a given to act like this...

 

[winnie 10]

Thanks for sharing your view

[Frank 10]

The core high-level intraday model says that more often than not, the market will choose a direction and then continue that direction until the last hour. But let's quantify this tendency.

 

Since Thanksgiving, the 110 trading days have seen 70 days (64%) that had this tendency. That is, the high or low for the day was made AFTER 3pm. If we add 'Period L' into it as well (2:30pm or later), it becomes 80/110 -- or 73%.

 

This is not a forecast of the future -- simply a statement of fact about the last 110 days.

 

I am still trying to figure out how to actually use this tendency. But the vague idea is to think that on any given day, once the market has chosen a direction --- more often than not, the S&P's will tend to continue in the chosen direction until the final hour.

 

 

[Frank 10]

FOMC Week and Options Expiration Week Will Tend to be screwy. Here is review for the week:

 

[winnie 10]

Dear Frank,

 

Have you find out that in the afternoon period , there is always new intraday high or new intraday low ?

Thanks for sharing your study .