The Evolution of Market Profile Theory

[MightyMouse 12]

Is this thread re-opnened?

[Tams 20]

Is this thread re-opnened?

 

 

for those for who are willing to play hide and seek, with a cute mixture of silliness, mock arrogance, and potential bigotry, the answer is YES.

[crabbydog 10]

I don't necessarily have any insight into this subject, but I can share a tool that might be useful in the analysis. Our Zig Zag indicator has been enhanced with an option to label each leg with a variety of statistics including Volume (that traded during leg), Delta (of volume traded during leg), and Delta Per Price, among others. I think Delta Per Price might be especially helpful as it takes the delta of all volume that traded in each leg/trend, and divides it by the price change of each leg/move. So for instance, 100,000 contracts may have traded during an uptrend/leg that moved up 5 points or 20 ticks/prices (on ES)...with a delta of +10,000. So the delta per price would be +10,000/20 or 500.0. It essentially measure the average positive delta required to move the price up one tick.

 

Here is an example using a Zig Zag with minimum price change of $3 (each leg/move is at least a $3 move):

 

Images | ChartHub.com

 

 

It may also be interesting to further normalize these labels/stats to divide delta by (Prices * Volume).

 

Chad

Chad, in your post about your zigzag indicator who did you mean as 'we'. Is this an indicator you are selling or is available somewhere in the forums or what?

 

thanks

[crabbydog 10]

 

Interestingly the OP decided to dump some of his pictures over at ET. The response was exactly what one would expect to such reused material. I renew my plea that should more threads be started we be treated to new pictures.

 

Don't understand this bit, what's the OP? is ET Elite trader?

[UrmaBlume 10]

Today in reply to this thread a very astute poster noted his feelings about Market Profile as "This is really great stuff, thanks for even posting Urma. I've read every article and book there is relating to Market Profile and knew that it was just the start of being on the right track. The next step was to throw away most of it because it leads to nowheresville. But what's left is the beginning of market understanding.

 

While this thread is about the technical Evolution of Market Profile theory and some of the technologies that have been developed by me and others that are based on Market Profile theory, most of our in-house traders have moved on from the Profile Graphic.

 

We do have at least one die hard who keeps one of his 8 screens on 30 minute profiles. This pic is taken from a recent update to a market report that shows these 30 minute structures as they reflect the strong buying in the first couple of hours of today's (09/09) trade that propelled price to new highs.

 

The structures cover 30 minutes each and the Dots show the net buying or selling in each structure as read from the index on the left. Each structure shown reflects net buying:

 

[clmacdougall 11]

Urma, this thread is fascinating. Please help me to understand why volume is better than time at price when understanding value. Doesn't time at price remove the problem of the daily "U" shaped volume profile in the ES, or even worse the problem of increasing volume as the night session ends and the day session of the ES is about to begin.

Don't these and other volume irregularities remove the value of following volume to find value rather than TPO's?

The problem I've had with volume is it seems to lie about value and instead points to panic areas of buying or selling at market openings and closings. It seems that most volume can be attributed to portfolio balancing when at either the start or end of the RTH large commercial traders are handed the present reality of price and react to it.

Would it be fair to say that time at price, no matter how weak in volume during the night, rotated/moved due to massive volume being traded in stock markets or forex markets on the other side of the planet. In this way doesn't using TPO's allow for a proper valuing of sentiment which occured throughout the night or simply at a low volume time?

Any help you can give would be greatly appreciated. Since finishing all there is publicly available to read concerning MP, your threads have been so refreshing and thought provoking. Please continue to share some insights on the new understanding of Market Profile out there today.

[clmacdougall 11]

One other question for you Urma, when you mention order flow in your previous posts, has it now become the medium to which you apply your MP methods both old and new?

Through reading your posts there seems to be an abandonement of concentrating on price and a real energy in your posts concerning order flow. Is order flow your core concentration when applying the balance to imbalance understanding found in MP teaching? It seems that you are able to indentify and take advantage of any buyer - seller imbalance, is this the most profitable and repeatable application of MP understandings?

[UrmaBlume 10]

Urma, this thread is fascinating. Please help me to understand why volume is better than time at price when understanding value. Doesn't time at price remove the problem of the daily "U" shaped volume profile in the ES, or even worse the problem of increasing volume as the night session ends and the day session of the ES is about to begin. Don't these and other volume irregularities remove the value of following volume to find value rather than TPO's?The problem I've had with volume is it seems to lie about value and instead points to panic areas of buying or selling at market openings and closings. It seems that most volume can be attributed to portfolio balancing when at either the start or end of the RTH large commercial traders are handed the present reality of price and react to it.Would it be fair to say that time at price, no matter how weak in volume during the night, rotated/moved due to massive volume being traded in stock markets or forex markets on the other side of the planet. In this way doesn't using TPO's allow for a proper valuing of sentiment which occured throughout the night or simply at a low volume time?Any help you can give would be greatly appreciated. Since finishing all there is publicly available to read concerning MP, your threads have been so refreshing and thought provoking. Please continue to share some insights on the new understanding of Market Profile out there today.

 

clmacdougall,

 

First of all thank you very much for the kind words.

 

Peter introduced time at price as a method of approximating online volume from the pits when online volume from the pits was not available. For starters how can an estimate or an approximation be as useful as the real number? Its a matter of metrics and method.

 

Almost every commercial trader I know has a background in Market Profile theory but only 1 of them still uses it as a method. We also teach market profile theory to our in-house traders but only as concepts key to basic market understanding - never as a method.

 

The reason we teach it that way is because we believe that there are trade decision support technologies that while based on market profile theory as it was taught in the old days they are able to more precisely present the information that the profile was designed to approximate but fails in today's enviornment.

 

For example you can see in my posts on the Harmonic, HUD, Balance of Trade, primer on the construction of an index of weighted biases, Order Flow and Commercial Intensity that they all present information on topics basic to market profile theory but impossible to read from the market profile graphic.

 

Market Profile as a theory should be basic to any trader's education. As a key to understanding general market dynamics for sure - as a method - its time has passed.

[diablo272 10]

UB, can you remind me what you mean when you say "commercial traders"? Is that synonymous with "professional"? Or is it something different? I think you already answered that question in one of your threads, but I haven't been able to find that post. Thank you for sharing some of your tools and viewpoints.

[UrmaBlume 10]

UB, can you remind me what you mean when you say "commercial traders"? Is that synonymous with "professional"? Or is it something different? I think you already answered that question in one of your threads, but I haven't been able to find that post. Thank you for sharing some of your tools and viewpoints.

 

diablo272,

 

Thanks for the kind words.

 

At 1224 PST, less than an hour before the close on last Thursday 09/17 a single trading entity sold suddenly and sold big accross all three equity futures and coordinated that trade down to the sub 1 second time frame.

 

In each of the three charts below for NQ, YM & ES you can see the sell spikes that drove price down and see that it was coordinated to the second in all three markets.

 

This is the signature of what we call commercial trade - trade done by whomever that is of such volume and intensity that it creates local extremes as was the case with the trade shown below. This was the second such spike of the day and you can see them both discussed in a thread here.

 

While Peter always taught the importance of spotting commercial trade and the indicator shown below does exactly that - as this trade occured well into the value area none of this activity would have been apparent to users of the profile graphic.

 

 

 

 

 

 

 

[TEAMTRADER 10]

I agree completely Urma, it is a major confirmer of a fulcrum.

Everything is easy when you know how.

TEAMTRADER

"Trade what you see and not what you hear or hope."

[UrmaBlume 10]

One other question for you Urma, when you mention order flow in your previous posts, has it now become the medium to which you apply your MP methods both old and new? Through reading your posts there seems to be an abandonement of concentrating on price and a real energy in your posts concerning order flow. Is order flow your core concentration when applying the balance to imbalance understanding found in MP teaching? It seems that you are able to indentify and take advantage of any buyer - seller imbalance, is this the most profitable and repeatable application of MP understandings?

 

In the past Peter taught that the best indicators of future price don't have price as part of their calculation. We agree. Price based indicators cannot lead price because they can't change until AFTER price changes.

 

In the screenshot bleow the lines are Jurik's AMA on the mid-points of the price bars. Note that on this chart, with time as the bottom axis, that the lines are to the right of price which means they come after or they LAG price. Next note the dots which represent an index of weighted biases whose construction is described here. Please note that the dots, in almost every case, are to the left of price which means they lead price. Certainly we reference price but indicators such as this index are heavily weighted towards indicacations taken from our calculation of the balance of trade/order flow.

 

[clmacdougall 11]

Thank you UB for the time you took to answer my questions. Could I ask, do you begin the day with a slant towards the short or long side of the market before you even apply your market generated information, or do you simply apply your weighted biases indicators and run with them? Thanks again.

[clmacdougall 11]

Just one more question UB, would it be fair to say that your weighted index is far more tuned to price reversals than a delta footprint chart and could you please give your opinion on the delta footprint charts usefulness. Thanks again.

[Tooker 10]

diablo272,

 

Thanks for the kind words.

 

At 1224 PST, less than an hour before the close on last Thursday 09/17 a single trading entity sold suddenly and sold big accross all three equity futures and coordinated that trade down to the sub 1 second time frame.

 

In each of the three charts below for NQ, YM & ES you can see the sell spikes that drove price down and see that it was coordinated to the second in all three markets.

 

This is the signature of what we call commercial trade - trade done by whomever that is of such volume and intensity that it creates local extremes as was the case with the trade shown below. This was the second such spike of the day and you can see them both discussed in a thread here.

 

While Peter always taught the importance of spotting commercial trade and the indicator shown below does exactly that - as this trade occured well into the value area none of this activity would have been apparent to users of the profile graphic.

 

 

 

 

 

 

 

 

 

I have missed out on many pages, but from what I read all I could hear what indicator gloating... Unless he has given you the definition... this is fairly easy to create...

Edited September 22, 2009 by Tooker

[Tooker 10]

Very easy to create your intense commercial measure.

 

http://www.screencast.com/t/Tn5kfPUVf7

[Tooker 10]

I also use traditional profile theory with a heavy heavy focus on market logic. I understand you disagree with older market profile concepts. I can see where you are coming from, it is really a matter of application. I believe the profile should be used for market understanding. I use my market logic + market understanding as the core of my market strategy. I use various other measures to determine the shorter term and longer term auction and position myself in the direction of the dominant auction to secure free exposure.

 

Again, I believe a complete understanding of how markets function and a complete understanding of market logic should be the core of everyone's methodology... but thats just me... All the indicators and harmonic cycle tuners really just creates more noise... at least on my time-frame. I told positions in a very similar manner to Ant...

 

Assuming you are a scalper, or a smaller time-frame than I am... and you have used and internalized all these indicators to completely understand how they function.. I'm sure you can be very profitable with them...

 

In fact you can be very profitable with any method you would like - if you use correct position sizing and risk management. I cannot believe there is not a greater focus on risk management and position sizing in the trading community. It has to be due to the lack of understanding and the attraction to pretty indicators...

 

You make some very interesting points, I will be reading through all you have written on the forum over the next couple of days... and great idea on the trade intensity indicator... I really like it.

[Crazynasdaq 10]

Very easy to create your intense commercial measure.

 

9-22-2009 5-23-38 AM

 

Ok Tooker, very easy to create for you......... I've an idea of What UrmaB tell us and It's very interesting and usefull to analyze the logic of the market in a different way than before, but what I've created is not so close to UrmaB indicator as yours.

Can you specify the logic or the code to obtain an indicator as yours so close to the Urmablume one ?

Thanks

[Tooker 10]

Wow, I am really shocked you guys have not figured it out yet. I will post definitions and variations of it later on. I am currently studying his other chart examples, I am fairly confident I can create them all... Its all volume baby...with a dash of frequency....

 

It's all about how you split and look at the volume that makes greatest difference.

 

It looks as though my variation actually has less noise as well...

 

Urmablume I am not trying to flame or attack you... just friendly competition... I do not see any logic behind doing that. I would rather collaborate...

 

Oh and fade the open. At these prices 67-68 very low risk considering your sitting against the top of the current range extreme...

Edited September 22, 2009 by Tooker

[Crazynasdaq 10]

Wow, I am really shocked you guys have not figured it out yet. I will post definitions and variations of it later on. I am currently studying his other chart examples, I am fairly confident I can create them all... Its all volume baby...with a dash of frequency....

 

It's all about how you split and look at the volume that makes greatest difference.

 

It looks as though my variation actually has less noise as well...

 

Urmablume I am not trying to flame or attack you... just friendly competition... I do not see any logic behind doing that. I would rather collaborate...

 

In my opinion, the Logic behind Intraday Intensity is just frequency x volume.

Most of the datafeed have seconds as minimum timestamp, so to discover frequency in just 1 second I have to work with single tick, make a tick counter and count how many ticks in just a second. In this way I have frequency. Then I multiply frequency with volume of eache single tick.

This is my way (example):

10 different trades in just a second.

1 x 13 contracts = 13

2 x 5 contracts = 10

3 x 86 contracts = 258

4 x 113 contracts = 452

5 x 37 contracts = 185

6 x 3 contracts = 18

7 x 21 contracts = 147

8 x 1 contract = 8

9 x 234 contracts = 2106

10 x 9 contracts = 90

----------------------------------

Total 10 different trades (that's my frequency)

Total 522 contracts (That's my cumulative volume in that second)

Total 3287 (intraday Intensity) = cumulative (Frequency x single Volume)

 

This is my way..............Am I wrong ??

[Tooker 10]

Okay here it is... in a standard indicator in the Market Delta Software. Results directly mimic those of the one I was duplicating, with less noise. Although I have a feeling it will be attacked by the original creator (Which I can understand, after having attracted so much forum attention with it)

 

 

Results speak for themselves.

 

Edited September 22, 2009 by Tooker

[sdoma 10]

To me, increased volume on a move means the move was opposed - higher total volume on an up move means that selling was encountered. We believe that the power of a move, in any time frame, is derived from the extent of the imbalance and NOT the total volume in the move.

 

I'm not sure I fully understand your reasoning. This is how I understand AMT as it applies to your statement. Forgive me, this is wordy, but I want you to see my thought process:

 

Any time a transaction is recorded, there is a buyer and a seller. If there weren't, there would be no price activity recorded and the prices would simply gap higher (in an up move) as participants bid higher and higher trying to facilitate trade (i.e. attract sellers), or prices would fall to levels where trade has been done in the recent past. That's why short squeezes can be so dangerous, if one entity owns a large part of the market and won't sell, prices can spiral out of control as the shorts bid frantically.

 

So, whether there is high or low volume on a move, you encounter those willing to sell since every transaction has to have participants on either side. I agree with you in that imbalance is more important than volume, because imbalance creates opportunity, but then you seem to invalidate that by saying high volume on a move means a lot of opposition and makes the move less attractive.

 

To me it's just a measure of the extent of participation, and can be indicative of who is participating. If you have imbalance on very high volume, that tells me commercials are involved and the chances that they'll "cap" the imbalance are lower. In other words, the wider perception of the true value of a security has changed and been accepted by those traders who can take positions and truly move that price.

 

However, if the imbalance occurs on low volume oftentimes your big commercial level traders don't perceive a real imbalance, and will often trade what they see as an improper pricing of the security, i.e. fade and push prices back into value.

 

I was taught that moves in price are but advertisements for opposing activity and until that opposing activity begins the move is likely to continue. Further, that oposing activity slows/ends moves and adds volume. It is all in how you break down the balance of trade.

 

I always considered price an advertisement for activity period. Think about it, in a stock bull market, as prices are higher you find participants willing to pay these higher prices. That is why prices move higher and will stay higher - the common perception of value by those who hold positions (not day traders) moves higher over time. Prices move up and find activity, but it's confirming of the present trend.

[Guest honvlyy]

In my opinion, the Logic behind Intraday Intensity is just frequency x volume.

Most of the datafeed have seconds as minimum timestamp, so to discover frequency in just 1 second I have to work with single tick, make a tick counter and count how many ticks in just a second. In this way I have frequency. Then I multiply frequency with volume of eache single tick.

This is my way (example):

10 different trades in just a second.

1 x 13 contracts = 13

2 x 5 contracts = 10

3 x 86 contracts = 258

4 x 113 contracts = 452

5 x 37 contracts = 185

6 x 3 contracts = 18

7 x 21 contracts = 147

8 x 1 contract = 8

9 x 234 contracts = 2106

10 x 9 contracts = 90

----------------------------------

Total 10 different trades (that's my frequency)

Total 522 contracts (That's my cumulative volume in that second)

Total 3287 (intraday Intensity) = cumulative (Frequency x single Volume)

 

This is my way..............Am I wrong ??

 

Wouldn't the intensity be largely different if the 234 contract trade occured first rather than 9th? How do you maintain numerical accuracy with this implementation?

[Crazynasdaq 10]

Wouldn't the intensity be largely different if the 234 contract trade occured first rather than 9th? How do you maintain numerical accuracy with this implementation?

Surely your note is correct and that's why I ask for the correct forumulation of the Intraday Intensity.

The correct logic to build the correct and functional indicator.

Maybe it could be in the same second:

(Frequency x cumulative volume) @ ASK -- (Frequency x CUmulative Volume)@ Bid = Intraday Intensity

 

In this way I've to slice the Bid from ASK and caclulate for each side

Frequency (Numbers of trades in that second) x Cumulative Volume @ Ask

Frequency (Numbers of trades in that second) x Cumulative Volume @ Bid

and then subtract the firsts from the seconds

 

In this way each trade and each volume at that frequency has the same weight (the firs is equal weighted than the last).

Is this way correct ??

[Tooker 10]