The Evolution of Market Profile Theory

[i trade 10]

great post itrade...

 

TY Koi...great minds think alike :did I say that?:

[sep34 10]

TY Koi...great minds think alike :did I say that?:

 

I dont know about the "great" part, as that is subjective........ but, indeed like minds do think alike

 

Im enjoying this converstation too, will visit back later to do some lurking.

 

By the way, if you do decide to start over in a new thread, just mention it here in small short post.

[clmacdougall 11]

Hey there my friend,

 

I have to say when I am running on all cylinders 99.9% of my trading plan consists of leaning on value of some degree or another.

 

Although you can say the concept of MP is a science I believe learning and mastering it is more of an art. Kinda like playing a musical instrument if you will. The concept itself is easy to understand but to be able to harness the power of it is another story. On the surface pressing some keys on a piano looks easy...but to produce beautiful sound from one I imagine would be quite the endeavor.

 

Horizontal rotation is caused by traders agreeing on value within a given zone or area. You can't expect traders to agree on 1 exact price for value for any period of time but they will agree on an area. It's a feeling out process to find efficiency or balance. Its all relative to the time frame you are trading. There is always going to be indecision and uncertainty at some level. The degree of indecision is what makes the market Cory. The key for me is comparing the balance/imbalance in the foreground to the balance/imbalance in the background. When I learned to do that I was able to embrace the uncertainty.

 

The question I'm always asking my self...how does the vertical movement/dominance in the FG (foreground) compare to the condition of the BG (background)?

The 2 outcomes to that question are what shape my trading plan:

 

1) the FG vertical movement/dominance gets absorbed by the balance in the BG (for me a winning situation/trade(s))

 

2) The FG vertical movement/dominance changes the condition of the BG (I stop out and evaluate the opportunity to reverse and start the process all over again)

 

Gotta run...I have some value areas waiting to be leaned on.

 

To be continued....

 

Playing a piano huh.....sounds like pages 3 - 5 in Mind Over Markets, a pretty quaint analogy but useless. Please, no mention of "Beethovens haunting Moonlight Sonata" (bottom of page 3).

Forget about what the book says Tommy, what do you think? Is the stuff right or off? Just because it was written and published doesn't mean you've got to quote it verbatim. Why not question it and make for a useful thread instead of quoting it and having us all go to sleep.

A "feeling out process" ......"indecision and uncertainty"......."embracing the uncertainty"! That sounds like my first couple of years trading, not what I want to hear from someone who understands market structure.

If you got the goods than fill us in.

[MightyMouse 12]

Playing a piano huh.....sounds like pages 3 - 5 in Mind Over Markets, a pretty quaint analogy but useless. Please, no mention of "Beethovens haunting Moonlight Sonata" (bottom of page 3).

Forget about what the book says Tommy, what do you think? Is the stuff right or off? Just because it was written and published doesn't mean you've got to quote it verbatim. Why not question it and make for a useful thread instead of quoting it and having us all go to sleep.

A "feeling out process" ......"indecision and uncertainty"......."embracing the uncertainty"! That sounds like my first couple of years trading, not what I want to hear from someone who understands market structure.

If you got the goods than fill us in.

 

 

Mac,

 

I am assuming you are new to this.

 

If your goal is to make money trading, your time will be best spent getting your head in the right place when you're in a live trade rather than slaving over trying to find the perfect indicator or method of trading. MP is as good as any other method of looking at the market. It will give you a disadvantage if you use it and don't trust it. So, if you don't trust it, stay away from it.

[i trade 10]

Playing a piano huh.....sounds like pages 3 - 5 in Mind Over Markets, a pretty quaint analogy but useless. Please, no mention of "Beethovens haunting Moonlight Sonata" (bottom of page 3).

Forget about what the book says Tommy, what do you think? Is the stuff right or off? Just because it was written and published doesn't mean you've got to quote it verbatim. Why not question it and make for a useful thread instead of quoting it and having us all go to sleep.

A "feeling out process" ......"indecision and uncertainty"......."embracing the uncertainty"! That sounds like my first couple of years trading, not what I want to hear from someone who understands market structure.

If you got the goods than fill us in.

 

Mouse hit the nail on the head. If you don't trust your methodology it ain't gonna work... plain and simple.

 

Cory, if you say I sound like Dalton I'll take that as a compliment...ty my friend!

What exactly are you looking for? MP is not a system that tells you when to trade based on a red line crossing a blue line. MP is a way to organize the data that is produced by market action. I use it, in all time frames, to show me areas where I want to do business.

 

Every trade is all about uncertainty man...unless you have a crystal ball you're not telling us about. The idea is to get to a point in your trading where you are comfortable with the uncertainty of the situation because you know your risk is clearly defined and you have probability on your side.

 

Maybe this forum isn't the right place. I'm not trying to talk anyone into using MP. It works for me. My thought here was to try and hook up with other like minded MP traders to bounce ideas off while sharing my strengths and improving on my weaknesses. :helloooo:

[BlowFish 10]

Well, there aren't any tools that offer long term statistical significance other than trading with inside information......

 

You might want to look at Jperls excellent threads on trading with market statistics. At a couple of points there are fairly interesting discussions on what is 'statistically significant' and what is not (particularly comparing MP with the market statistics framework). Apart from that it is a novel approach with as complete and robust a presentation that you are likely to find anywhere.

 

There are a variety of things that are 'statistically significant' (Jerry discusses a few) whether they can be used to provide an 'edge' (my experience is that Jerrys stuff can) is a different matter of course

[clmacdougall 11]

Look at the title of this thread, " The Evolution of Market Profile Theory,". The idea in coming to this thread was to stretch ourselves while discovering a new and vibrant way to apply MP theory.

The only reason I followed this thread was because UB was doing just that. I'm not trying to offend you, just to continue the spirit of this thread forward.

We can certainly question the methods by which we trade MP and at the same time why not knock around the theory a bit too. It's not sacred!

The theory is simply a non-traditional means of ascertaining support and resistance, the only difference between this and traditional understandings of identifying support and resistance is that instead of looking for a pullback from those areas to the nearest areas of previous congestion, we look for a pullback towards the POC / HVP .

Is that a viable means of long term success in trading?

Does looking at multiple time frames of previous bell curves and POC's / HVP's in higher timeframes really help us to understand where price "might" go?Or is that part of the "pseudo-science" that has been attached to MP?

I don't know if I ever once heard UB referring to the "Value Area" maybe he understood how elusive value really was and focused solely on price rejection instead. Does price really have the potential to return to a "Value Area" / POC when it gets rejected or do we simply look for opposing rejection before closing out our initial position?

[MightyMouse 12]

You might want to look at Jperls excellent threads on trading with market statistics. At a couple of points there are fairly interesting discussions on what is 'statistically significant' and what is not (particularly comparing MP with the market statistics framework). Apart from that it is a novel approach with as complete and robust a presentation that you are likely to find anywhere.

 

There are a variety of things that are 'statistically significant' (Jerry discusses a few) whether they can be used to provide an 'edge' (my experience is that Jerrys stuff can) is a different matter of course

 

Blowfish,

 

What i mean by statistically significant is probably something different than what this jerry individual considers statistically significant.

 

if you roll the dice, before you roll, there are exactly 36 possible outcomes. So if you are trying to roll dice for money, there is only 1 of 36 numbers you can roll. It's never the case that you think it's 36 but it's really 37, 40 or 400 or 5. So, in dice, you are able to use statistics to determine whether or not the payoff for winning is enough to overcome the odds you have take. Clearly, a casino makes sure that the payoff is in their favor.

 

In trading, it is never the case that there are a fixed set of outcomes in the future. In the market statistics is a good way to measure the past, but that's about it.

[BlowFish 10]

Blowfish,

 

What i mean by statistically significant is probably something different than what this jerry individual considers statistically significant.

 

if you roll the dice, before you roll, there are exactly 36 possible outcomes. So if you are trying to roll dice for money, there is only 1 of 36 numbers you can roll. It's never the case that you think it's 36 but it's really 37, 40 or 400 or 5. So, in dice, you are able to use statistics to determine whether or not the payoff for winning is enough to overcome the odds you have take. Clearly, a casino makes sure that the payoff is in their favor.

 

In trading, it is never the case that there are a fixed set of outcomes in the future. In the market statistics is a good way to measure the past, but that's about it.

 

To be honest it's probablly not worth pursuing this. It has all been said before in the threads I mentioned. Sampling market data is completely different to sampling die rolls, thats the whole point. Seems like a counter productive use of my time to repeat all the arguments again here.

 

All I can tell you is that the threads I mentioned present ideas that demonstrated to my satisfaction that not only can statistics be used to analyse financial time series but they present robust ideas for trade entry and money management based on these statistics. At the time not only did I check out the maths (who would have thought stats would spark interest!) but I traded the ideas for successfully for several months before going back to my own thing.

 

I can not understand why anyone that is interested in the 'evolution of MP' would not want to take a look. It has a lot of smilarities to MP including a similar 'look and feel'. You could argue it represents the current state of the art when it comes to the 'evolutioun of MP theory' (except based on valid statistical methods rather than heuristics). I guess you can lead a horse to water but you can not make him drink.

Edited January 7, 2010 by BlowFish

[i trade 10]

Look at the title of this thread, " The Evolution of Market Profile Theory,". The idea in coming to this thread was to stretch ourselves while discovering a new and vibrant way to apply MP theory.

The only reason I followed this thread was because UB was doing just that. I'm not trying to offend you, just to continue the spirit of this thread forward.

We can certainly question the methods by which we trade MP and at the same time why not knock around the theory a bit too. It's not sacred!

The theory is simply a non-traditional means of ascertaining support and resistance, the only difference between this and traditional understandings of identifying support and resistance is that instead of looking for a pullback from those areas to the nearest areas of previous congestion, we look for a pullback towards the POC / HVP .

Is that a viable means of long term success in trading?

Does looking at multiple time frames of previous bell curves and POC's / HVP's in higher timeframes really help us to understand where price "might" go?Or is that part of the "pseudo-science" that has been attached to MP?

I don't know if I ever once heard UB referring to the "Value Area" maybe he understood how elusive value really was and focused solely on price rejection instead. Does price really have the potential to return to a "Value Area" / POC when it gets rejected or do we simply look for opposing rejection before closing out our initial position?

 

Cory,

 

Correct me if I'm wrong but it seems like you are focused on using MP to tell you where the market will go. I gave up a long time ago on trying to figure out where the market will go. Instead I use the profile to tell me where the market shouldn't go. Here's another silly analogy for you...I look at price as a pinball. I don't know where it will end up but I know with good probability where it should bounce. And those areas where it should bounce are the areas where I want to do business. I look for the background condition of the market to absorb the vertical dominant movement. Unless the condition of the background changes due to dominant vertical movement, the trade produces profit for me. I haven't discussed MP concepts with many people but it seems like most people on these boards use MP to project where price will go: how the profile structure might fill out, TPO counts, day types, range projection,etc. None of that stuff has ever worked for me and only served to confuse me while taking away my confidence.

 

Now the art of correctly managing those trades is the part of my personal trading that I am refining and the part that can use some improvement. All in / all out type of trading never worked for me. A big improvement to my trading came when I realized the correct way for me to enter and exit trades is to scale in and out. So unless the vertical movement that I am fading blows right thru my area I am always locking in at least some profit while building a cushion for any runners that I hold onto.

 

I am in a short trade in eur/jpy as I'm writing this...I'll post some charts later on it and try to explain my thinking on why I entered and how I managed it....still in it.

 

MP is not the only way I manage my trades but rather is the base for all my trading decisions.

[clmacdougall 11]

Cory,

 

Correct me if I'm wrong but it seems like you are focused on using MP to tell you where the market will go. I gave up a long time ago on trying to figure out where the market will go. Instead I use the profile to tell me where the market shouldn't go. Here's another silly analogy for you...I look at price as a pinball. I don't know where it will end up but I know with good probability where it should bounce. And those areas where it should bounce are the areas where I want to do business. I look for the background condition of the market to absorb the vertical dominant movement. Unless the condition of the background changes due to dominant vertical movement, the trade produces profit for me. I haven't discussed MP concepts with many people but it seems like most people on these boards use MP to project where price will go: how the profile structure might fill out, TPO counts, day types, range projection,etc. None of that stuff has ever worked for me and only served to confuse me while taking away my confidence.

 

Now the art of correctly managing those trades is the part of my personal trading that I am refining and the part that can use some improvement. All in / all out type of trading never worked for me. A big improvement to my trading came when I realized the correct way for me to enter and exit trades is to scale in and out. So unless the vertical movement that I am fading blows right thru my area I am always locking in at least some profit while building a cushion for any runners that I hold onto.

 

I am in a short trade in eur/jpy as I'm writing this...I'll post some charts later on it and try to explain my thinking on why I entered and how I managed it....still in it.

 

MP is not the only way I manage my trades but rather is the base for all my trading decisions.

 

Tommy,

 

I'm really looking forward to your presentation. Just like you I believe that most of the trading methods attached to MP are foolish.

The concepts at it's core are great, but trading those concepts successfully forward without first ditching most of the MP tagalong junk is impossible.

[i trade 10]

Update...closed out majority of eur/jpy short position on test of early morning lower value area...holding my minimum trade unit for test of daily lower value.

[i trade 10]

I'm not one for real time updating here..takes alot of energy...but eurjpy just broke lower early morning unfair lows ...closing out shorts here at lower daily value 133.24...will post charts later

[i trade 10]

Ok..I'm not going to get into exactly where I scaled in and out throughout the range but suffice it to say every last unit sold throughout the campaign was covered at a lower price. Although I did inform you of my short bias after I actually started trading to the short side, I did tell you in real time that I was already short and pointed out 2 diff't spots, in real time, where I covered lower. Coincidentally the last of my position was closed out right near the low tick.

 

The 1st chart I will show you is the backgound (BG) in this situation and sets up the basis for this campaign. I call it a campaign not to sound like Jesse Livermore but because I was very active in this area selling price spikes to the upside, leaning on value and then covering on downswings. My original reason for doing business in this area never changed so why not keep capitalizing on it as long as my BG condition is intact. The BG should always be relative to whatever timeframe you are trading. In this case I was using the daily as my BG and the 60 M profile for my foreground (FG). I look at all timeframes for opportunity but will not look at other timeframes once I start the trade. I hate to even put time constraints on profiles since most of the time I will merge profiles to show areas of balance(horizontal activity) and imbalance(vertical step 1 activity).

 

Looking back at the charts now I hope nothing gets lost in the translation....there's stuff going on real time within the profiles that you see but once they finish developing you might not. In any case you will see the basis of what I was looking at.

[i trade 10]

1st off if mod, UB, or anyone thinks we should start another thread just say the word.

 

UB..my hat is off to you. Although my mind goes to putty when you start talking about programming code, latency, etc., I understand 100% where you are coming from and the ideas you have presented here....I wish you were still posting and I can't wait to read your poker book. I play nlh of course but I love stud 8.

 

Now on the daily chart posted here: I would have been looking to play the high volume node anyway but what makes this one particularly interesting is where the high volume took place and what happened after it.

 

I'm going to compare it to the way UB looks at commercial(smart $, other time frame trader) action on his charts. Although I consider my self to be a scalper for the most part, I obviously don't act on the nano second time frame like UB. And in this case I am using the information to my benefit after the fact, not at the time it's happening. But I do look for smart $ footprints left in the market. (In fact thats the main reason I look at bar charts to show me on a vertical scale where the volume is and just as important what happened after the volume occurred.)

 

The meaning of the high volume there on the highs on 01/04/10 to me is supply provided by the commercials/smart money selling. I have to assume that if it was the big boys buying there the market would have continued on to new highs, not close lower then go on to head lower the next day. Granted I'm looking at tick volume not real volume but it's still a great proxy. (SIDE NOTE TO UB: going by your explanation of commercials spraying the market with these low volume high intensity/quantity sell orders wouldn't tick volume be just as good as normal volume?)

 

So that being said, my confidence in my short bias and the condition of the BG is boosted even a little more then usual in that situation and I will assume until proven wrong that any vertical movement into this area will be absorbed, for the time being anyway.

 

I don't predict and I don't pretend to know where the market will go. All I know are areas where the market should give me at the very least a bounce and that's where I hang my hat and do some business.

 

 

to be continued....60 M profile charts to follow

[clmacdougall 11]

It's funny that whenever someone tries to make a science out of trading it draws so much ire. One of the best books I read before discovering MP was "The New Science Of Technical Analysis" by Thomas Demark. His relentless attempt to make a science out of price action alone was admirable and alot of fun to study.

The trouble I've found with price action alone is most of it is based on changing momentum seen through a break of previous trend and in truth no one can predict what might occur simply because price momentum happens to slow, it might be taking a breather before continuing forward or it might be about to reverse, who knows.

Trend is a liar too. It's not your friend.

Demark taught me to look at the market at it's closest points of trend in effect drawing trendlines from what he called "right to left"! It was a great concept! In effect he made the most out of trend/price action that he possibly could.

But I found a change in trend has serious limitations in what it can predict.

So I found the next step, Market Profile. Market Profile is initially sold as a trading wonder drug, it's going to cure all of your trading ailments and give you confidence about where price "should" return to once it reaches its profile extremes. The only trouble with all of that is that value is elusive and the fat part of any profile means less and less as time moves on. It's a bit like catching the wind in a plastic bag and figuring that you've got it all and now know where the wind is.

Don't fool yourself all profiles are yesterdays...yesterweeks....yestermonths understanding of value, or for that matter an understanding that is 5 minutes...30 minutes or 1 hour old. Key thing... it's old.

And don't kid yourself if you believe in a return to value, no matter how you scale in or scale out, you are predicting / hoping for price movement in that direction. We're all predicting in some degree, to quote UB " if you can accurately read imbalance in multiple timeframes you can PREDICT future price in multiple time frames."

I appreciate that the man has attempted to make a science out of Market Profile concepts.......sounds a bit like evolution.

[i trade 10]

I'm temporarily crippled computer wise until my computer guy comes over this weekend, not posting charts until I'm fully functional. If anyone knows anything about getting out of a virus related boot loop where every time my computer restarts and gets to the windows screen it restarts itself...please let me know.

 

Corey,

 

Value is relative to the time frame you're looking on...I don't understand the point you're trying to make. Are you really saying previous value is "old" so it can't be used to tell you if current price is undervalued or overvalued? How else would you suggest someone determines value on anything in this world if he can't compare it to previous value...whether that value is 5 minutes old or a week old? When you get your house appraised how does the appraiser determine value? Besides the actual condition of your house, he uses the sale price of the last 3 or 4 houses similar to yours that have sold. The appraisal won't be based on what the owner thinks his house is worth or what the owner needs his house to be worth it's going to be based on what other sales have recently taken place. I mean I can go on and on and on with examples of how value is determined in everyday life, never mind the markets we trade.

 

Not trying to be a wise arse but please fill me in..what exactly is it that you are looking for in a method to trade the markets? MP is not some magical indicator and those who try to use it as such get burned. It's just a way to organize the data given off from the market. Plain and simple. What you do with that data once you view it, in a manner that makes sense to you, is up to you. For me it breaks down the market action into a very pure form. Once I accepted it for what it really is I became a lot more confident and a lot less reactive to price movement.

 

And again, I don't predict where price will go. I use MP to tell me where, as long as conditions remain the same, price should not go. The point where I would be wrong and don't want to be in the trade anymore is clearly defined. What more could you ask for?

 

The only certainties I have are my if /then scenarios. IF BG condition of the market changes then I get out and re evaluate. IF BG conditions remain the same THEN I see how far the market can bring me.

 

UB..I see you lurking...please speak up man. Let me ask you this...does the backgound condition have any bearing on where you take your nano second trades? Maybe your in and out so quick it doesn't matter? But you must have losers and I'm curious if where you take your trades when you see the commerical activity matters at all in your win percentages. I know it's all about the ordeflow for you but wouldn't the commercials be more active in defending their previous high volume areas?

 

Corey if you want to see more charts over the weekend let me know...weekly value gave a nice lean this morning on the Euro/usd after the numbers.

[i trade 10]

P.S. as I was sending that last post Euro got back up against the lean on weekly volume and already bounced. It's given me a cushion on new shorts and we'll see where it goes...thats all I can ask for!

[i trade 10]

Have another question for you Corey...when you look at a bar chart do you consider that an indicator? Of course not cause the bar chart is just a way to organize the market data. It's the same thing with MP. Now you can put a RSI or a MA on a chart and use them as indicators and develop a method or system just the same as someone can use TPO counts or day types to create a method with MP. Seems like you're blaming the messenger (MP) and not the method.

[BlowFish 10]

I'm temporarily crippled computer wise until my computer guy comes over this weekend, not posting charts until I'm fully functional. If anyone knows anything about getting out of a virus related boot loop where every time my computer restarts and gets to the windows screen it restarts itself...please let me know.

 

Corey,

.

 

Try hitting F8 a few times after the bios stuff flashes by (but before the first windows splash screen) then select safe boot and you will load a minimal system. That should allow you to start up and commence clean up.

[i trade 10]

Try hitting F8 a few times after the bios stuff flashes by (but before the first windows splash screen) then select safe boot and you will load a minimal system. That should allow you to start up and commence clean up.

 

 

Thanks BF, I have already tried that, booting into safe mode gives me only an extra second or 2 b4 the puter shuts off and reboots. Something happened overnight...usually I can see if I'm being attacked and then I can shut down manually right then and there and reboot into safe mode and run malwarebytes which will eradicate the culprit. But this time it got me good.

 

 

BTW ... Nice Euro activity here, Higher time frame MP for the zone and smaller time frame MP as well as volume / orderflow to manage.

[i trade 10]

All shorts closed out...done for the week.

 

I have decided to start a new thread and see where it goes. Over the weekend I will try to explain and decipher how the euro situation developed and how I traded it today using MP, volume, and order flow. It is actually a very good example for 2 reasons: 1) unlike the eur/jpy trade I pointed out yesterday which never gave me much heat, todays late in the day euro/usd trade went red towards the extreme end of the zone but then came back and ended in profit.( I had confidence taking the heat because of the confluence i was getting from my level, the volume climax, and order flow divergence all of which I will point out). and reason 2) the zone gave 2 totally separate opportunities today both of which acted very different from one another.

 

All I hope to gain from this is some feedback, hopefully from someone who trades in a similar fashion to me. At the same time I don't mind explaining this to people for whom MP is a new concept. Also, for anyone who has tried to trade with MP and hasn't had any success, keep an open mind - just because you weren't able to trade successfully with it doesn't mean other people can't.

 

I'm also thinking that by explaining this to other people it will make me review my trading plan and that can only help me.

[Kiwi 16]

itrade,

 

Invest in some good imaging software like acronis. Then store an image of your c drive (and others but less important for virus issues). Once a week store the image.

 

If you get a virus of any kind then you just boot on a CD/DVD and restore the image. Virus gone.

 

I no longer use real time virus protection (clam only) because I can be back to good in 30 minutes ... think of all the wasted checking that no longer happens.

[maxima 10]

itrade, are you saying that your favourite strategy is shorting bounce off major resistance areas?

[i trade 10]

itrade, are you saying that your favourite strategy is shorting bounce off major resistance areas?

 

Yes sir....shorting resistance and buying support determined by previous areas of value and volume within that value.

 

Starting a new thread soon.