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ant

Trading with Market Profile

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As today's POC widens, the more difficult it becomes to get away from it. To get away from a wide POC you need force - manifest in volume - otherwise the POC will most likely be revisited.

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It is a difficult bet to think price will move away and STAY away from an existing wide POC. That said, late in day there is very likely to be a move above the high or below the low set earlier in day -- as volume comes back into the market late in day. The N bar is one of the best range bars of the day (volume surges on this bar) so this is the most likely time of day for a violation of an earlier high or low and attempt to break away from value. That said, MP is all about 'imbalance' -- including the imbalance of volume -- not just raw volume. So reading this imbalance in real time is another way to think about 'monitoring for continuation'.

 

In a nutshell, while value is being established currently, and this is expected to continue further -- there should be a move away later in day -- this attempt could very well end up failing and go right back to the (wide) POC. Given this situation, its best to just enter 'with or in anticipation of...' that expected rush of volume and then 'ladder out' as price moves to/through the earlier high or low -- and/or trail a breakeven stop on partial, imo.

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In a nutshell, while value is being established currently, and this is expected to continue further -- there should be a move away later in day -- this attempt could very well end up failing and go right back to the (wide) POC. Given this situation, its best to just enter 'with or in anticipation of...' that expected rush of volume and then 'ladder out' as price moves to/through the earlier high or low -- and/or trail a breakeven stop on partial, imo.

 

On a rotational day like today, my preference is to fade the extremes (responsive trade) as opposed to take an initiative trade. I'm hoping to get a short opportunity near the day's high and then have the possibility of the market taking out the day's low. It's just a matter of trading style I think. Thanks for your post.

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I'm starting to feel like short-term traders are getting too long here. The profile is starting to resemble a P-shape with a poor high. A poor high could also form because short-term traders are too long and they are feeling the anxiety of being long. Everytime the market trades near the high, short-term traders sell. I believe longer-term traders may be taking the other side of their trade and a long trap is forming. If I'm correct, we can get long liquidation break later in the day. Getting this kind of market feel is still something I'm working on. I'm still looking for a short opportunity.

 

Note: At 2pm EST the FOMC minutes will be released.

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I'll share with you one of my mental issues. I currently have a short bias and think that we could see a liquidation break. Sometimes I get hung up on trying to find an exact or optimal entry instead of just getting short, which is probably what I should do right now. I have found that always looking for exact entries and exits in trading is not the right thing to do. I don't think that long-term, successful traders look for such exactness in trading. I think I will miss my short trade because I'm looking for the market to take out today's high.

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I agree that a premature move up or down is not 'likely' to sustain and fadeable.

 

I would note though that the market just doesn't make high AND low both late in day very often. It should be one or the other. For example, how often in past 2 years has there been a high and low made BOTH in 'J or later'?? -- this is easily quantifiable:

 

last 540 days, this has happened 31 times, which is <6%. This is not a forecast for today, just a statement of historical fact.

 

edit: note that several of these 31 occurences were on FOMC days and so these stats might actually overstate the odds relative to today.

Edited by Frank

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I don't think that long-term, successful traders look for such exactness in trading.

 

Perhaps not. But then they don't have to.

 

Sometimes I get hung up on trying to find an exact or optimal entry instead of just getting short, which is probably what I should do right now.

 

Whether or not you do may depend in large part on how much you're willing to allow the trade to go against you once you've entered.

 

Sometimes we just have to let them go. But seeing what they then do provides us with additional information that may make or break the next trade.

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Db, I was thinking along those lines as well, but it really helps to hear it from other traders.

 

Sometimes we just have to let them go. But seeing what they then do provides us with additional information that may make or break the next trade.

 

I think you're spot on with this. I will continue doing what I'm currently doing since I have to manage my risk as you stated, which means I'll miss some trades. C'est la vie...

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I think you're spot on with this. I will continue doing what I'm currently doing since I have to manage my risk as you stated, which means I'll miss some trades. C'est la vie...

 

I'd like to be spot on enough never to miss the trade. Unfortunately...

 

For me, the most important point you've made regarded MP providing information on the structure of the market rather than trading signals. Knowing where to look for the potential trade is perhaps more important than most people realize. How to take it is of course important, but a failure-prone focus if one is looking in the wrong place. Or, if one wanted to put it as a riddle, when is a reversal not a reversal (or a breakout not a breakout, etc)?

 

The whole nail the entry thing can make the trader feel like a dog chasing his tail. The theory is that it doesn't matter. Practically, however, it does. But the trader has to decide how wide or tight the stop should be (and goes back and forth over this), whether or not and how he should try again if the first effort fails (and goes back and forth over this), how to tell if he's "right" or not (and goes back and forth over this), and the less he understands the nature of the market, or the less he trusts what he knows regarding the nature of the market, the longer he will spin round and round.

 

Incidentally, your post #12 should be printed out and pinned to the wall.

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For me, the most important point you've made regarded MP providing information on the structure of the market rather than trading signals.

 

Yes, this is the focus of this thread, not the trade signals. I'm trying to demonstrate how I use MP to understand what the market is trying to do, identify good trade location, keep me out of the bad trades, and keep me from overtrading. For those who have been reading this thread, please focus on the decision-making process.

 

EDIT: Also important is using MP to monitor trade continuation. For example, I think the risk of long trades is significant and any short-term long trade should have been liquidated by now. That doesn't mean that the market can't go higher, but that the risk on long trades is high based on market structure.

Edited by ant

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I'm starting to feel like short-term traders are getting too long here. The profile is starting to resemble a P-shape with a poor high. A poor high could also form because short-term traders are too long and they are feeling the anxiety of being long. Everytime the market trades near the high, short-term traders sell. I believe longer-term traders may be taking the other side of their trade and a long trap is forming. If I'm correct, we can get long liquidation break later in the day. Getting this kind of market feel is still something I'm working on. I'm still looking for a short opportunity.

Note: At 2pm EST the FOMC minutes will be released.

 

 

also long weekend next Monday... many people start winding down their trading today.

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Yes, this is the focus of this thread, not the trade signals. I'm trying to demonstrate how I use MP to understand what the market is trying to do, identify good trade location, keep me out of the bad trades, and keep me from overtrading. For those who have been reading this thread, please focus on the decision-making process.

 

And I'm glad you chose a day that you suspected would not be "easy".

 

A great thread, and much appreciated.

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The width from high to low of the fat part of the P-formation is only about 4 points - not worth trading. The up auction does not look complete to me as there is still a poor high. Let's see if the longs today have to liquidate by the close in order to go home flat. I'm done for the day.

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1:01PM EST: I'm starting to feel like short-term traders are getting too long here. The profile is starting to resemble a P-shape with a poor high. A poor high could also form because short-term traders are too long and they are feeling the anxiety of being long. Everytime the market trades near the high, short-term traders sell. I believe longer-term traders may be taking the other side of their trade and a long trap is forming. If I'm correct, we can get long liquidation break later in the day. Getting this kind of market feel is still something I'm working on. I'm still looking for a short opportunity.

 

Well we got a decent break considering today's 8.75 pt range. Here is the final MP for today.

 

Final-Sept2.GIF.36e3be20ee11f632ef696915882204fa.GIF

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Here is my ES analysis for Sept. 3rd.

 

The chart below reviews the relevant balance areas on the daily chart. Yesterday, we broke down from the higher balance area and we continue to trade within the previous balance area between 1016 and 975.50. The odds favor testing the balance area low at 975.50. By the way, there is a gap that hasn't been filled yet between 975.50 and 975. It's important to review the bigger picture so that you're aware of what's possible in the market. For example, if the market trades down to 975.50 tomorrow, not saying that it will do that, will it catch you by surprise?

 

Daily.GIF.ce8ac8ea16958936330201bce2b8d0da.GIF

 

The next chart shows today's profile which contains a poor high and a very prominent POC. The two trade scenarios I will be considering for tomorrow is to (1) buy below value since the odds are high that the prominent POC will be revisited and that the poor high will be taken out. This does not mean that we have to trade back up through the single prints from 9/1. (2) Sell above value since the prominent POC is likely to be revisited, the current auction is down, and the destination is still 975.50. I would prefer to see the POC revisited and the poor high taken out before heading lower since that would provide more confidence in the down move.

 

Profile.thumb.GIF.3327a57d1b3e10ff3b2559b70bcc157e.GIF

 

Here's another perspective I'd like to share (see chart below). If you combine the lower distribution from yesterday's trend day and today's profile, you have a pretty tight balance area ready for a breakout. The balance area high would be around 1002.75. If we get accepted above 1002.75, we could start to retrace the single prints from 9/1. I like to have that scenario in mind so that I'm not so focused on the short side. Be cautious of a failed breakout to the upside though, where the market looks above either today's high and fails or looks above 1002.75 and fails. The move in the opposite direction could be dynamic.

 

Balance.GIF.641a228343c0da85ba6d48d9fea03b15.GIF

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This is a terrific thread. Thank you so very much for sharing. I watch Volume Profile on an intraday, 5-day, and whole-contract basis. It helps me keep track of multiple trading ranges simultaneously on one screen. Different way to view the same market data... I also use similar "long term" big picture charts to keep an eye on long term participants.

 

All the best,

 

Stone

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I will probably exit the entire long trade a point or so below yesterday's POC around 999. I also moved my stop to below yesterday's low. I don't have high expectations for this trade given the low confidence market today.

 

Can you explain why you entered a long trade?

From your earlier posts I understood that the bias is to get short.

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Can you explain why you entered a long trade?

From your earlier posts I understood that the bias is to get short.

 

fed2008, I am referencing the relevant posts where I commented on that. Basically, when a rotational day is expected, as suggested in Post #14 and #17 below, the strategy is to fade the extremes and trade in both directions. Go for singles and doubles, no home runs.

 

Post #14: There is support around 989.75. However, if the market starts trading down there, lower value will be building there making long trades a bit risky. If we get a rotational type of day, which is usually expected after a trend day like today, that trade is do-able in my opinion.

 

Post #17: This indicates a low confidence opening and the likelihood of a rotational day. Will trade on both sides of the market (long and short). So within the first 15 mins of the day, the tone has been set as to how I would probably trade the rest of the day.

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I'm also curious - what about Globex session, nobody seems to trade during it, and nobody seems to consider the data from it.

Any clues why?

 

I will comment on that in my next post. Stay tuned...

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Reviewing the pre-market action in the ES... The overnight inventory is long since most of the overnight trading has occurred above yesterday's settle. It is typical for the overnight weak longs to be pressured in the early morning. This is not always the case, but usually. This provides more support for short trades. If the market does not pressure the overnight longs, this could indicate that the market is strong and that longer-term buyers were active in the overnight session.

 

So when monitoring a trade for continuation, do you know what to look at? Here are the short-term references that I look at (prices are based as of this posting) to see how the market is trading through them:

 

  • the overnight high at 1004.25
  • the overnight low at 991.75
  • yesterday's high at 999.75
  • yesterday's low at 991
  • yesterday's settle at 994
  • today's open
  • And of course, all of the other references mentioned in my post with the analysis for today

As the market opens, focus on where the market is going to open relative to yesterday (i.e., in or out of balance and to what degree), if the market is showing high or low confidence (and to what degree), and estimate what value is likely to be for the day. To determine if a market is showing high or low confidence, pay attention to how the market trades around the short-term references mentioned above. If the market is trading exactly to those numbers or a tick away, those are short-term traders and indicates a low confidence market. Once you have a feel for what value may be for the day, trade value and not price. That is, if value is likely to be lower, why would you be taking long trades? This alone will keep you out of a lot of bad trades. Don't get suckered by price. I think that one of the challenges for traders starting to trade with MP is changing their mindset to trade value and not price. Once you come up with an assessment for the day, it can change throughout the day. Knowing how you will trade the rest of the day early on takes a lot of pressure away from trading.

 

Good luck trading today!

Edited by ant

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re Globex -- decide if globex session is strong one or not --- if strong -- that direction will generally generate a move beyond that globex extreme. if its up but weak, then that would be consistent with a selling tail and might hold all day.

 

here is snapshot from a globex volume perspective for today

 

attachment.php?attachmentid=13199&stc=1&d=1251984681

5aa70f1da16fa_20090903AMThurs.thumb.png.196e2f626ed18df0d6f9a9132b8352d4.png

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A recap on what's happened so far:

 

  • ES opened within yesterday's range
  • Prominent POC revisited
  • Yesterday's high taken out - poor high corrected
  • trading back within yesterday's range
  • POC revisited
  • traded to opening price
  • ES has slowed near POC - this is natural, this is not a signal to take a long trade

Let's see if we can trade through the POC and if the overnight weak longs will throw in the towel and sell. If we start trading below the POC, we could see acceleration.

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