The Evolution of Market Profile Theory

[maxima 10]

Cool looking forward to the illustrations

[clmacdougall 11]

I don't gamble and never have. But I want to use a gambling analogy here. The house never loses. I don't mean that you can't profit as a trader because in effect you're never at odds with the exchange, but with other traders.

But for a minute just look at the real winner at all times, the CME. It wins when you win and it wins when you lose. Activity keeps it alive, and causes it to profit. The only kind of price activity that ensures it's wealth is the constant rotation of price.

Price rotation entices new activity back into the market and in doing so causes the exchange to profit. You can be assured that if rotation causes the exchange to profit than it is the only understanding of price activity that matters and that without a doubt will continue and should be what someone attempts to build a science upon.

Without price rotation across multiple time frames there is no opportunity / enticement for the next contract to be purchased based upon the conviction / philosophy of the new purchaser. The question for MP followers is does a traditional understanding of MP give you the edge you need to trade that rotation as it transforms into a reversal.

[clmacdougall 11]

itrade,

 

I don't have trouble with believing in some of the concepts uncovered by Mr. Steidlemayer, in particular imbalance to balance, and the philosophy of trapped money ( sort of the same thing I guess).

The part of MP that seems so strange is how much information is hidden by the Profile itself. Ultimately the reason you're using MP is to give yourself more of a clear picture of market internals through uncovering horizontal rotation. But that horizontal rotation could be rising support or falling resistance when viewed in the correct timeframe with a bar chart.

I guess what I'm trying to say is that support and resistance can be hidden by the profile if you're not really careful and that's what your trying to uncover in the end.

I'm looking forward to electroniclocal 's presentation this weekend but couldn't help but notice in his thread a quote which struck a cord with me, " A range bar that takes a long time to form is usually a result of no distinct direction of order flow." I don't want to make more of that than he did, but on a larger scale isn't that true concerning the value area, isn't that horizontal rotation proof of no "distinct direction" as well?

[i trade 10]

Hey Corey,

 

What do you mean when you say support/resistance is hidden? And I'm not sure what you are referring to when you say market internals?

 

Horizontal movement = balance = value = efficiency = support/resistance. That's how I look at it. The balance/value area is the support/resistance....it's right there in the profile. And it shows me where to do business.

 

Balance is relative to the timeframe you are looking on. You can have balance on a 60 minute timeframe, you can have balance on a weekly timeframe. If you are looking at balance on a weekly timeframe and you want to pin point entry and exit points drop down to a 60 minute profile to trade it. When value/condition is unclear to me on 1 time frame I look at another time frame until I find a clear value area that I can lean on. That becomes my backqround condition. Then as long as I can define acceptable risk and reward I drop down in time frame to manage the trade. As long as the market activity on the shorter timeframe is absorbed into the background condition of the higher timeframe then my trading idea for that particular instance will be profitable. If I don't have any clear information to work with then I don't do any business and I move on to something else to trade. Part of successful trading is knowing when not to trade. I don't pretend to know what is going on at every moment in the markets I trade. But I do know what areas I want to do business in and from there all I can do is define and accept my risk.

 

Again I'll pose the question to you...what exactly do you want MP to tell or show you?

[i trade 10]

P.S.

I know I promised some charts...I will follow up on that. Been a busy week trading and family wise. I started to post over the weekend but I found myself going into detailed explanation of the way I trade the markets which takes some time.

[clmacdougall 11]

Hey Corey,

 

What do you mean when you say support/resistance is hidden? And I'm not sure what you are referring to when you say market internals?

 

Horizontal movement = balance = value = efficiency = support/resistance. That's how I look at it. The balance/value area is the support/resistance....it's right there in the profile. And it shows me where to do business.

 

Balance is relative to the timeframe you are looking on. You can have balance on a 60 minute timeframe, you can have balance on a weekly timeframe. If you are looking at balance on a weekly timeframe and you want to pin point entry and exit points drop down to a 60 minute profile to trade it. When value/condition is unclear to me on 1 time frame I look at another time frame until I find a clear value area that I can lean on. That becomes my backqround condition. Then as long as I can define acceptable risk and reward I drop down in time frame to manage the trade. As long as the market activity on the shorter timeframe is absorbed into the background condition of the higher timeframe then my trading idea for that particular instance will be profitable. If I don't have any clear information to work with then I don't do any business and I move on to something else to trade. Part of successful trading is knowing when not to trade. I don't pretend to know what is going on at every moment in the markets I trade. But I do know what areas I want to do business in and from there all I can do is define and accept my risk.

 

Again I'll pose the question to you...what exactly do you want MP to tell or show you?

 

Thanks for the explanation of how you trade, itrade. I'm looking forward to your presentation. I think that instead of getting caught up in a verbal misunderstanding I'll simply wait for your presentation and then see where similarities or differences might exist between how you use MP and how I do.

[i trade 10]

Thanks for the explanation of how you trade, itrade. I'm looking forward to your presentation. I think that instead of getting caught up in a verbal misunderstanding I'll simply wait for your presentation and then see where similarities or differences might exist between how you use MP and how I do.

 

Sounds good C! Hopefully in the next day or 2.

[clmacdougall 11]

Answers are easy to find, it's the right questions that are hard to come by. Once you've figured out the right question finding the answer is just a matter of time.

Figuring out the right philosophy before applying yourself to study is incredibly important or you'll just burn yourself out over a period of time, continually and aggressively going in the wrong direction.

It was Tom Alexander who said that more time applied to studying the market in an out of context way leads you to nothing and gets you no further ahead.

MP helped me to begin seeing the markets horizontally no longer relying on trend or simply a vertical understanding of the market, for that alone I'm appreciative, but does it really give structure.

At this point if I could have an audience with UB I'm not sure if I'd have the right questions to ask or not. But I think it might be concerning market structure. Has he abandoned the idea that the market has structure as MP told us it did in the past, does he simply believe in the dynamic uncovering of commercial trade and does that itself prove the "now" of market structure.

[i trade 10]

At this point if I could have an audience with UB I'm not sure if I'd have the right questions to ask or not. But I think it might be concerning market structure. Has he abandoned the idea that the market has structure as MP told us it did in the past, does he simply believe in the dynamic uncovering of commercial trade and does that itself prove the "now" of market structure.

 

Commercials...other time frame....composite operator.....traders from the beginning of time have been tracking the commercials. Look at Wyckoff and his tracking of the CO. But what came first the chicken or the egg. Do commercials trade around value or does value follow the commercials. Willing to bet its a little of both. In either case value = structure.

 

" It was Tom Alexander who said that more time applied to studying the market in an out of context way leads you to nothing and gets you no further ahead. "

 

Context = background = value on higher time frame.

 

 

""Answers are easy to find, it's the right questions that are hard to come by. Once you've figured out the right question finding the answer is just a matter of time.""

 

Question to ask yourself: will the vertical movement in the foreground get absorbed into the background or will it change the condition of the background.

 

Consider this from Steidylmayer:

 

Successful traders realize that the setup for both winning and losing trades look identical when looked at in the context of short term market activity. It's the longer term background condition that can distinguish between them. Using the background as the basis for your trade setups = upgraded opportunities.

[i trade 10]

I don't know about you but personally I'm not equipped to compete on a nano second time frame like UB. But that doesn't mean I can't track the footprints of the commercials and use them to my advantage.

[clmacdougall 11]

Commercials...other time frame....composite operator.....traders from the beginning of time have been tracking the commercials. Look at Wyckoff and his tracking of the CO. But what came first the chicken or the egg. Do commercials trade around value or does value follow the commercials. Willing to bet its a little of both. In either case value = structure.

 

" It was Tom Alexander who said that more time applied to studying the market in an out of context way leads you to nothing and gets you no further ahead. "

 

Context = background = value on higher time frame.

 

 

""Answers are easy to find, it's the right questions that are hard to come by. Once you've figured out the right question finding the answer is just a matter of time.""

 

Question to ask yourself: will the vertical movement in the foreground get absorbed into the background or will it change the condition of the background.

 

Consider this from Steidylmayer:

 

Successful traders realize that the setup for both winning and losing trades look identical when looked at in the context of short term market activity. It's the longer term background condition that can distinguish between them. Using the background as the basis for your trade setups = upgraded opportunities.

 

Again we are having misunderstandings with regards to terminology. You misunderstand what I mean by structure, it certainly is not simply and I quote "value = structure", there is far more to the market then simply value as I'm sure you'd agree. I've said before that if you would only post your said illustrations and your promised presentation than we can possibly understand each other. I'm looking forward to your presentation.

Moderated Message:

Moderated Message:

[SNYP40A1 10]

The hardest part is figuring out how to relate information from the background -- the longer term time frame to the present, shorter-term time frame. In other words, you can usually merge together the MP distributions many different ways. More and more, I am agreeing with UB that order flow and buying / selling pressure provide the strongest clues about where the market is going. I currently only use MP for identifying support / resistance levels, but maybe I will gain new insights and applications overtime.

[BlowFish 10]

I don't know about you but personally I'm not equipped to compete on a nano second time frame like UB. But that doesn't mean I can't track the footprints of the commercials and use them to my advantage.

 

You might be surprised. Geographical location (and the ceiling of the speed of light through glass) is going to be one of your biggest limiting factors. UB is located in Las Vegas and does OK. Of course data feed and execution engine are important too. I believe that he uses tradestation for data albeit with custom .dll's. Using Zenfire or TT will immediately put you on a better footing there too.

 

This is exactly why in another thread I pointed out why it was dangerous to use Hyperbole. People come away with completely the wrong idea idea about what is and what is not possible. It's a shame as in my view it diminishes what are thought provoking posts.

[clmacdougall 11]

Thanks for the call UB it helped me to see where the road was and what the next step is. You're the most public provider of in the now information concerning price movement. Thanks again.

[madspeculator 10]

Clmacdougall:

 

Would you mind sharing with us excerpts of your conversation with UB when you find time? If sharing such information would infringe upon UB's intellectual property rights, I can understand you not wanting to share that information.

 

Thanks.

[UrmaBlume 10]

Thanks for the call UB it helped me to see where the road was and what the next step is. You're the most public provider of in the now information concerning price movement. Thanks again.

 

Cory,

 

Thanks for the kind words.

 

I applaud your hard work and your forward looking and willingness to consider and explore beyond the SameO conventional understanding when it comes to the market profile in specific and technical analysis in general.

 

In my experience it has been those who are more interested in learning than trying to make a point that go the distance. I learn a lot from and welcome dialogue with smart, open, honest, hard-working, up and comers like yourself.

 

Again thanks for your time today and thanks for the kind words.

 

cheers

[i trade 10]

The hardest part is figuring out how to relate information from the background -- the longer term time frame to the present, shorter-term time frame. In other words, you can usually merge together the MP distributions many different ways. More and more, I am agreeing with UB that order flow and buying / selling pressure provide the strongest clues about where the market is going. I currently only use MP for identifying support / resistance levels, but maybe I will gain new insights and applications overtime.

 

Order flow is what moves the market...no question there.

 

Support / resistance is the main thing I use MP for.

 

Actually I can boil it down to 3 main things that I glean from MP:

 

1) Shows me the areas where I want to do business and my bias for trading within those areas.

2) Helps me define my risk by showing me where the market shouldn't go if my trade idea is correct.

3) Keeps me out of noise.

 

Idea: why not use MP as your back gound to enter trades and order flow to manage?

[hegh 10]

hi,

 

I think the MP is more than just Supports / Resistances.

IB, the Profile, the VA and their respective position of MP are more than just a graphic representation (even if I use my own word).

[koifan 10]

I just happened to come across something on the James Dalton Trading website confirms my earler statement that Market Profile is NOT an Indicator. This is a quote from Mr. Dalton (author of :Mind over Markets") himself...

 

"Market Profile® is not an indicator in the technical sense nor does it provide buy and sell signals but rather it is a decision support-tool. It provides a composite view much different from other charting tools available and as a result, gives a trader the opportunity to form a broader perspective. The Profile organizes the market’s continual two-way auction (race after race after race) so that you can advance your trading and decision-making abilities."

 

The posting created a lot of opinions that it was an indicator... but I believe Mr. Dalton has the correct

and only correct answer. I rest my case.

[TheDude 10]

Perhaps its because I was not trading in the 1980's but I have different perspective --- one that never started with idea that Market Profile was a trading method, as many MP disciples probably did. I think of market profile as 'theory only' and always have done so. How you interpret the developing intraday chart is about order flow and this is achieved through 'multi-timeframe' analysis -- where a bias is created based on higher timeframe order flow and is executed on lower timeframe to enhance the reward/risk relationship.

 

One thing that is enduring though -- is that the resulting intraday histogram seeks value --- and price 'overlaps' when it reaches that level of value. How you want to define/interpret this is up to the trader. It is not that the profile gives you a heads-up on what WILL happen, it is the underlying concepts that accompany Market Profile that allows you to make a FORECAST about what will happen (and quite often entirely separate from the existing histogram at that point in time). And then it is the correlation between your execution -- relative to what actually happens that drives your profit and loss.

 

On the one hand, you say market profile taught you all the theory you know -- then go on to say you have moved on. I guess for many of us who never used it as a trading method in the first place -- saying you have 'moved on' comes as no surprise.

 

comments welcome

 

I agree.

 

It does seem a bit of a waste attending all those seminars and asking for a refund when the attendee didn't grasp/listen to the basic premise of what was being taught.

 

As for the indicators that have been developed since, I can't help feel that the amount of thought and time that it inevitably took to develop them would have been better spent 'in the zone' focusing on the market at how it behaves at key reference points. I'd rather rely on my intuition than a binary indicator. In my opinion, the brain can understand context way better than a multitude of indicators (or 'intelligent agents' if you prefer).

 

Of course, we're all different and we must respect that.

 

Interesting approach.

[TheDude 10]

Very well said and right on. As far as this forum goes, I thought I was all alone with an understanding and past exposure to this type of trading.

 

 

 

..... that operate on a data feed that costs more than a thousand dollars a day and that is just for the data - nothing to the infrastructure and the people to maintain the operation.

 

Your comments are most astute, thank you.

 

Don't worry Urma, you're not alone.

 

BTW, I have NEVER come across any feed that costs as much as this in the professional market. I don't know where you get your info, but I think someones trying to scare you with how big and powerful the bogey men are! At most, a direct feed from an exchange may cost towards a thousand PER MONTH for a small handful of users/licenses. Co-Lo is typically around 8-10k per 1/2 cage per month, and that's where the real money is for the exchange. Not the data. I hope that's useful info for you.

[bomberone1 10]

Hi,

 

I start to read trading by statistic link of jperls, is this a evolution of that theory?

[rjd007 10]

UrmaBlume, I have several neural net programs that I would like to run your data on. Would you be willing post your data from your indicators and charts to do some testing on?

[UrmaBlume 10]

UrmaBlume, I have several neural net programs that I would like to run your data on. Would you be willing post your data from your indicators and charts to do some testing on?

 

Thank you for the consideration.

 

We also have several neural network development tools but find that we often get better results from MARS (Multivariate Adaptive Regression Splines) from Salford Systems.

 

If you will refer to this thread on the Practical Application of Intelligent Agents and several others I have written on this subject you will note the value we place on preprocessing.

 

As to sharing our data - It wouldn't do you much good without the code for the preprocessing algorithms that produced it. Also it is the preprocessing that is the primary key to success in any such modeling endeavor and ours is proprietary.

 

You will find many clues to the types of inputs we use from my threads on this board but as to the work of preprocessing that will have to be up to you.

 

Running the data through the neural networks and building the algorithm is the easy party. What separates the models that work and those that don't is the preprocessing before and the optimizations and rules generation after.

 

good luck

 

UB

[fttb 10]

For anyone interested I have put these posts together (with some of the pics, though not all)

The Evolution of Market Profile Theory.pdf