The Evolution of Market Profile Theory

[UrmaBlume 10]

No point, I've discovered the harmonic is only good to look at after the fact.

 

If your version of the harmonic is only good after the fact then maybe it is missing something. This version usually leads, as shown.

 

[davewolfs 10]

If your version of the harmonic is only good after the fact then maybe it is missing something. This version usually leads, as shown.

 

 

"Usually Leads".

 

The problem is that sometimes it can whipsaw and for the style that I trade, by the time the cross over occurs can sometimes be later then where I would have already entered my trade. I've just found other methods of choosing entries to be superior. One thing, is that it definitely works much better for trending markets then range markets.

[davewolfs 10]

If your version of the harmonic is only good after the fact then maybe it is missing something. This version usually leads, as shown.

 

 

"Usually Leads".

 

The problem is that sometimes it can whipsaw and for the style that I trade, by the time the cross over occurs can sometimes be later then where I would have already entered my trade. I've just found other methods of choosing entries to be better suited to my style.

[taotree 10]

The problem is that sometimes it can whipsaw and for the style that I trade, by the time the cross over occurs can sometimes be later then where I would have already entered my trade. I've just found other methods of choosing entries to be superior. One thing, is that it definitely works much better for trending markets then range markets.

 

By crossover... you don't mean when the plot crosses 0 do you? The trade is at the peaks of the plot.

 

I've seen whipsaw, too, but I haven't applied any sophisticated smoothing to it, so... I haven't really evaluated it properly yet.

 

UB's nicely goes up and down whereas looking at the raw calculation I'm using, it wiggles a lot. Hmm.... which might mean: 1) UB is using some cycle smoothing on it and 2) I already know UB uses a different underlying formula for calculating it

[davewolfs 10]

By crossover... you don't mean when the plot crosses 0 do you? The trade is at the peaks of the plot.

 

I've seen whipsaw, too, but I haven't applied any sophisticated smoothing to it, so... I haven't really evaluated it properly yet.

 

UB's nicely goes up and down whereas looking at the raw calculation I'm using, it wiggles a lot. Hmm.... which might mean: 1) UB is using some cycle smoothing on it and 2) I already know UB uses a different underlying formula for calculating it

 

Even if you look at the peak, there is no way to now when that peak is in. This is something nice to look at, that is about it.

[taotree 10]

Even if you look at the peak, there is no way to now when that peak is in. This is something nice to look at, that is about it.

 

I'm a little confused... The peak is obvious on UB's charts: velocity changes sign and he has what I assume is a crossover of 2 differently smoothed values.

 

If what you're saying is that you don't have that on your chart, fair enough. I don't either

[paolfili 10]

UB can you suggest if the velocity considered in Harmonic Indicator are changes in volume domain (ex. in per constant volume bar sell/buy quantity) or time domain bar (ex. changes in sell/buy quantity for timeframe considered)?

 

Thanks

 

Paolo

[clmacdougall 11]

I don't think UB is posting anymore, but I think we should carry this thread forward, anybody interested? I'm sure many of us have ideas concerning the ,"now," of Steidlemayers work. If so let me know and we can keep this thread alive if that's ok with the moderators.

[zdo 20]

clmacdougal,

 

What areas are in the"now" of Steidlemayers work right now for you?

Anything in this thread?

What have you gotten from this thread so far? etc?

These are curiosity, not challenge, questions btw.

Thanks.

 

zdo

[clmacdougall 11]

I created profiles of the emini S&P 500 for each day and night session independent of each other for three years worth of data. I then divided up each profile by it's construction, using what I thought to be a reasonable and scientific approach. If the upper tail was at least twice as long as the lower tail I labeled the profile as a "b". If the lower tail was at least twice as long as the upper tail I labeled the profile as a "P". And if neither was twice as long as the opposite tail I labeled it as an, "O".

 

So I had the beginnings of a study in price reaction to differing profile structures. Not only that but after a considerable amount of study it became plain to see that if the evening value area was able to fully detach itself from the same days RTH value area, then it became the value area of importance come the next morning. To put it in different terms, if the evening value area was able to migrate/detach itself from the days value area , then it became the value area of choice to trade with in mind come the next morning.

 

Then I divided it up further by deciding upon the trend of the dominant profile by simply comparing the present dominant value area to yesterdays dominant value area. If it had a Lower Low and a Lower High it of course was proof of a downtrending profile and if it had a Higher High and a Higher Low it was of course an uptrending profile.

 

Next I went to a fourth step, Where does price then open ( at 8:30 am CST)? Within what I called the Upper Deviation (a space equal to the value area but above the value area high). Within the value area (between the vah and val). Or within what I called the Lower Deviation ( a space equal to the value area but below the value area low).

 

Fifth, what point does price then first touch after the open, 1st Deviation High, Value Area High, Value Area Low, or 1st Deviation Low?

 

And then finally, after all of this is said and done, the key question "WHERE DOES PRICE THEN MOVE TOWARDS?"

Is there predictability in price movement after all of these conditions had been monitored closely? The answer is yes, but not without both risk and the potential for failure.

 

I have been studying now for 3 1/2 years and I enjoy learning about the markets and market structure. I am in no ways yet successful as a trader, but I'm beginning to learn how to look at the market.............. at least I think/hope so.haha

 

Let me know what you think, any of your own observations would be appreciated

[clmacdougall 11]

The problems I've seen with Market Profile as a central trading ideology is that it's boundaries (areas of price rejection) and it's center (TPO/HVP) are too static.

Any previous understanding of value is almost totally useless by the time price reaches those boundaries again.

It seems like market profile was an attempt to discover support and resistance areas without the need of traditional price action understandings/patterns to uncover those areas.

Imagine the naivety of believing that price will almost always return to it's central Value Area simply because it found itself at yesterdays rejection area.

Everything for sale, with regards to trading information/methods, does not work. You would have to be crazy to sell a trading method/understanding that proved itself useful. You would be throwing away what could be passed down for generations to come in your own family.

When it comes to trading, yesterdays newspaper is the only one you'll ever get a chance to buy. Sit, look at tons of charts and think. So far for me it's been the best way to learn.

[Frank 10]

your points are all valid -- but you are making a bunch of blanket statements about your interpretation of market profiles 'trading rules'.... I think they are off the mark in that regard.

[koifan 10]

Using the profile to determine trading levels in incredibility accurate...proper study

will confirm this...there are many options to using it other than the standard 30 min chart.

I use the profile for levels, and other charts for signals when those levels are reached...

will never trade again without the profile.

[clmacdougall 11]

your points are all valid -- but you are making a bunch of blanket statements about your interpretation of market profiles 'trading rules'.... I think they are off the mark in that regard.

 

Explain to me what is really offered by market profile outside of an attempting to discern Support and Resistance in a non-traditional manner? Nothing.

Outside of Steidlemayers imbalance to balance statement what truly new concept has been found? That statement itself is what I've found to be the only gold in all the Market Profile writings. The question is can it be applied more effectively than what we've seen in UB's writings?

What is the "now" application of the golden principle discovered by Steidlemayer , in a means keeping with technology while staying true to the concept?

[clmacdougall 11]

Using the profile to determine trading levels in incredibility accurate...proper study

will confirm this...there are many options to using it other than the standard 30 min chart.

I use the profile for levels, and other charts for signals when those levels are reached...

will never trade again without the profile.

 

Please let us in on what "proper study" you've done. And what "levels" you are referring to.

[koifan 10]

Nothing you say...I guess you haven't observed it enough. The developing structure

gives clues all day long about the market. Including measured moves, stalling to

build places to trade back to creating high and low volume prices...but just watching a 30 min profile has limited use for day trading other than trading the value area. I learned from someone that has studied the profile for 7 or 8 years building charts by hand every day.

Yes, the profile isn't useful if you don't know how to read what it is saying.

There is no question in my mind it's a valuable tool and I apply it every day...

[MightyMouse 12]

MP is a tool. There is nothing mystical or statistically significant about it. You can gain much of the same info from a bar chart. Don't expect any trading tool to solve your problems.

 

 

Peace

[koifan 10]

yes MP is a tool...and a very good one...but can reveal much more than a bar chart...that's why I use it... understanding how to use and read it is the trick...but like any tool,

there is no magic solution to trading...pick your tools , and learn them well...and quit searching for any holy grail.

[clmacdougall 11]

MP is a tool. There is nothing mystical or statistically significant about it. You can gain much of the same info from a bar chart. Don't expect any trading tool to solve your problems.

 

 

Peace

 

What's the good of a tool if there's nothing statistically significantly about it? I'm afraid I'm of the same mind Mighty Mouse, the chart is the thing. Anything that hides them bars hides the truth.

[MightyMouse 12]

What's the good of a tool if there's nothing statistically significantly about it? I'm afraid I'm of the same mind Mighty Mouse, the chart is the thing. Anything that hides them bars hides the truth.

 

 

Well, there aren't any tools that offer long term statistical significance other than trading with inside information. The fact that something worked over the las 3 months or 3 years or 3 decades has no bearing on how it will work tomorrow.

 

You do lose some info when the profile is collapsed against the price axis, but most MP packages allow you to expand the profile and you can view the bars again and still see the VA and POC.Try it, you might like it.

[koifan 10]

MP has it's value...and is a great tool...but most traders don't take the time

to really learn to use it...but that is kind of a conundrum ...there are very few places

that really know how to teach it. It takes screen time like any trading method.

It's easy to reject something if you don't know anything about it. There are new software

products now that allow for the profile to be on candle or bar charts...which can help

you understand the value of this tool.

[i trade 10]

The problems I've seen with Market Profile as a central trading ideology is that it's boundaries (areas of price rejection) and it's center (TPO/HVP) are too static.

Any previous understanding of value is almost totally useless by the time price reaches those boundaries again.

.

 

Hey Cory,

I couldn't resist

 

In reply to your earlier comment that MP is static...it's all relative. You can trade off a monthly value area where the state of value is static but you could also trade off a 5 minute or 30 minute profile where value is pretty dynamic and constantly shifting.

 

Here's my 2 cents coming from someone who when 1st introduced to MP realized it was something of great significance but took a very long time to figure out how to make sense of it in a functional way (and I am still learning). I'm going to speak in terms of what I personally need in order to feel in control of my trading and make sense of market activity, for me MP is the answer....to each his own. When I say MP I refer to market profile, auction theory, order flow and volume analysis....as far as I am concerned they all go hand in hand. The profile is my base....everything else builds on it.

 

As Steidylmayer said data arrangement is the basis for control. In order to be in control you need to represent market activity faithfully without distortion. Markets are 2 dimensional...they move vertically and horizontally (or a combo of both). We all know that price is the medium in which the mkt expresses itself but unfortunately a regular bar chart displays price in mostly vertical terms and tends to create a reactive atmosphere. It doesn't reflect the horizontal movement very well....each new bar goes forward exactly the same distance as the last one regardless of the amount of activity in the bar. You can't see within the bar to see exactly where the all important 1st standard deviation (VALUE) is. I don't know about you but I'm not going to any kind of auction without first knowing the value of the object I'm bidding on. (I know I'm speaking in very general terms here)

 

It's late and I'm starting to ramble but it would be great to keep this discussion going. Maybe start talking methodology and posting some charts.

 

And remember...price is the medium of expression, not the expression itself.

[koifan 10]

great post itrade...

[clmacdougall 11]

Hey Cory,

I couldn't resist

 

In reply to your earlier comment that MP is static...it's all relative. You can trade off a monthly value area where the state of value is static but you could also trade off a 5 minute or 30 minute profile where value is pretty dynamic and constantly shifting.

 

Here's my 2 cents coming from someone who when 1st introduced to MP realized it was something of great significance but took a very long time to figure out how to make sense of it in a functional way (and I am still learning). I'm going to speak in terms of what I personally need in order to feel in control of my trading and make sense of market activity, for me MP is the answer....to each his own. When I say MP I refer to market profile, auction theory, order flow and volume analysis....as far as I am concerned they all go hand in hand. The profile is my base....everything else builds on it.

 

As Steidylmayer said data arrangement is the basis for control. In order to be in control you need to represent market activity faithfully without distortion. Markets are 2 dimensional...they move vertically and horizontally (or a combo of both). We all know that price is the medium in which the mkt expresses itself but unfortunately a regular bar chart displays price in mostly vertical terms and tends to create a reactive atmosphere. It doesn't reflect the horizontal movement very well....each new bar goes forward exactly the same distance as the last one regardless of the amount of activity in the bar. You can't see within the bar to see exactly where the all important 1st standard deviation (VALUE) is. I don't know about you but I'm not going to any kind of auction without first knowing the value of the object I'm bidding on. (I know I'm speaking in very general terms here)

 

It's late and I'm starting to ramble but it would be great to keep this discussion going. Maybe start talking methodology and posting some charts.

 

And remember...price is the medium of expression, not the expression itself.

 

Hey Tommy! Good to hear from you.

UB said something to me in a post alot earlier that stuck, he called what I was doing a "pseudo-science". In effect a false science. I wonder how many trading methods based upon MP are just that and what parts of it conceptually offer a truly fractal (applicable in all time frames) and viable means of studying price action.

Bar charts don't show horizontal rotation, you're right, but who wants to monitor indecision anyway? Rotation is not value, it's simply indecision concerning the direction in which price should head to next. You can monitor value via time (TPO) or volume (HVP) or through (VWAP) and you'll come to the same understanding, all you're uncovering are areas of indecision, not value. In effect the Value Area/POC (however you come about it) is a worthless lean.

Look, here's what I'm saying, tell me how to take the one or two golden principles found in Steidlemayers work and apply it outside of the ways mentioned in the old books.

[i trade 10]

Hey Tommy! Good to hear from you.

UB said something to me in a post alot earlier that stuck, he called what I was doing a "pseudo-science". In effect a false science. I wonder how many trading methods based upon MP are just that and what parts of it conceptually offer a truly fractal (applicable in all time frames) and viable means of studying price action.

Bar charts don't show horizontal rotation, you're right, but who wants to monitor indecision anyway? Rotation is not value, it's simply indecision concerning the direction in which price should head to next. You can monitor value via time (TPO) or volume (HVP) or through (VWAP) and you'll come to the same understanding, all you're uncovering are areas of indecision, not value. In effect the Value Area/POC (however you come about it) is a worthless lean.

Look, here's what I'm saying, tell me how to take the one or two golden principles found in Steidlemayers work and apply it outside of the ways mentioned in the old books.

 

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....