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ant

Trading with Market Profile

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Something else that I should have picked up on yesterday is that since the break to the downside on Tuesday (9/1), the market has been balancing and the market has formed a b-formation that is visible when you combine the previous 3 days (see chart below). This indicates a long liquidation break (old business) and not new money selling. Being aware of this prior to today could have provided more confidence in going with the breakout from the two and a half day balance.

 

Breakout.thumb.GIF.b908d0ceee112cd61ea56ef6565ad24c.GIF

 

Tuesday's profile on 9/1 doesn't look very healthy either. There is no backing and filling on the way down, especially in E period. What do you think is going to happen when the market starts trading into that area (i.e., the single prints)? It is going to retrace it probably very quickly since there is no resistance there. I also didn't like the way it fattened out towards the bottom of the profile. It lessens the odds for downward continuation.

 

Here is an example of why it is important to recognize poor structure. The single prints from Tuesday were completely retraced. Question now becomes do we get acceptance into the previous balance area bounded by 1038.75 and 1013.25. Volume is light today given it's the Friday ahead of a holiday weekend.

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If you're so inclined to provide your own analysis of the market in a separate thread, I will comment on it and give you my thoughts. I will do my best to answer any questions that you or anyone else may have. I think that would be more beneficial to you and others, because it will get you and others to start thinking about the markets in the way that I've been discussing.

 

Hello Ant,

 

I will start a thread over the weekend and hopefully you can chime in as you see fit... Thanks for all your help this thread has helped me greatly!

 

DK

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Hello Ant,

 

I will start a thread over the weekend and hopefully you can chime in as you see fit... Thanks for all your help this thread has helped me greatly!

 

DK

 

You bet! I look forward to it.

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Today is a double distribution trend day. We are getting acceptance up near the highs and we have a very poor high. I don't think the high is in yet, but not sure if it will be taken out today though. The second distribution is usually a reliable reference and you can usually take a long trade on the first test of the lower part of the distribution where the single prints start. I like this trade as long as the poor high remains. The trade becomes invalid once price gets accepted in the lower (1st) distribution. The one thing I'm cautious about though is the low volume ahead of the holiday weekend.

 

DD-Day.thumb.GIF.d979326846f81ac19911ba506a57f320.GIF

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Just for fun... what's the one thing you shouldn't have been doing today and why? :)

 

What one should have not done today is...... Take the day off, for it was a nice trading day ( yes I did short today just fine, but the long side obviously was more fun :)).

When we contract for several days then the best trade opps usually appear.

 

I dont use MP and have little MP knowledge. However, from what little I now about MP, I find it very interesting how much MP principles and my own methods overlap.

Even though some of the lingo i.e terms are alien to me the concepts behind the term are not.

It takes a long time to learn to trade the way I do, and I could see how benificial it is for new traders to use MP to help them understand markets i.e price action is trying to do.

 

By the way in the MP world what is meant by, acceptance??

 

 

 

All those in the US enjoy the long weekend.

Edited by sep34

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What one should have not done today is...... Take the day off, for it was a nice trading day ( yes I did short today just fine, but the long side obviously was more fun :)).

When we contract for several days then the best trade opps usually appear.

 

I dont use MP and have little MP knowledge. However, from what little I now about MP, I find it very interesting how much MP principles and my own methods overlap.

Even though some of the lingo i.e terms are alien to me the concepts behind the term are not.

It takes a long time to learn to trade the way I do, and I could see how benificial it is for new traders to use MP to help them understand markets i.e price action is trying to do.

 

In my opinion, one trade was all that was needed today, but I respect differences in trading style, especially if you're successful. :)

 

I think successful traders intuitively understand how markets/auctions work. MP is simply a tool that records those auctions.

 

By the way in the MP world what is meant by, acceptance??

 

You may have read in MP books that all markets that are financial in nature are governed by 3 principles: price, time, and volume. Price advertises opportunities, time regulates all opportunities, and volume measures the success or failure of those advertised opportunities. If a price is unfair to either buyers or sellers, price won't spend much time there because the other side would come in and either bid it up or down and that will usually coincide with a little volume being transacted there. Acceptance or rejection is gauged by how much time (or lack of time) price spends at certain levels and how much volume (or lack of volume) is transacted there.

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Just for fun... what's the one thing you shouldn't have been doing today and why? :)

 

I am going to take a shot at this... Opening above the 2.5 day VAH and being unable to get back into that distribution you should not have been looking to fade the DVAH / extremes for shorts and instead should have been looking for longs at the day's DVAL watching for price acceptance back into the 2.5 Day distribution to prove your long bias was incorrect... Getting into Tuesday's selling tail gave us a heads up that we could get a test of where the breakdown occurred 1013s and ultimately a test of Monday's POC 1016s where we found Resistance.

 

DK

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I am going to take a shot at this... Opening above the 2.5 day VAH and being unable to get back into that distribution you should not have been looking to fade the DVAH / extremes for shorts and instead should have been looking for longs at the day's DVAL watching for price acceptance back into the 2.5 Day distribution to prove your long bias was incorrect... Getting into Tuesday's selling tail gave us a heads up that we could get a test of where the breakdown occurred 1013s and ultimately a test of Monday's POC 1016s where we found Resistance.

 

DK

Good answer. You made 3 good points. First, you said that you would not be looking to fade the market because we were trading above the balance area. You were more specific than that because you referred to the VAH of the balance area. That's fine, but I simply refer to the balance area extremes. Secondly, you said that if we don't trade back inside the balance area (again I think you referred to the value area of the balance area), the long trade had not failed. And lastly, you said that the destination for the long trade was 1013 and then 1016, which I also agree with. I was focused on 1013 because that was the balance area low of the upper balance area and on 1016 because that was the balance area high of the lower balance area (see chart).

 

MoreProfiles.thumb.jpg.023de377538c1b2ae3536cb561c6c776.jpg

 

I would also add the following. I was not looking to short today because value was developing higher from the open and all day long. We never even came close to building overlapping-to-higher value, let alone unchanged or lower value. Since I trade value and not price, why would I go short if value is building higher? Secondly, I was focused on the two and a half day balance area and the market traded above it and stayed above it for the rest of the day. That was a breakout from a short-term balance area and that signifies change - we transitioned from a short-term balanced market to an up trending market. My strategy in up trending markets is to buy breaks and sell rallies, not sell rallies and buy breaks. This is an important distinction. This is also different than the strategy for trading balance ranges, where you fade the extremes.

 

Thanks for playing! :)

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My strategy in up trending markets is to buy breaks and sell rallies, not sell rallies and buy breaks. This is an important distinction.

Thanks for playing! :)

 

 

Having trouble wrapping my brain around this one... can you elaborate please.

 

Thanks!

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Having trouble wrapping my brain around this one... can you elaborate please.

 

Thanks!

 

DaKine, the following charts should explain it.

 

In an uptrend, you want to buy breaks first then sell into the rally. In this case, you have an active long position in an uptrend.

 

Yes.thumb.GIF.68ae64ac6fc9b387cc835da9150e1ca5.GIF

 

In an uptrend, you do not want to sell rallies first and then buy the break because the market could resume its uptrend pretty quickly, not to mention that most of the profits is to the upside in an uptrend. In this case, you have an active short position in an uptrend.

 

No.thumb.GIF.654288c5afdd47d9d3a26940ec7313e9.GIF

Edited by ant
Clarification.

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I wanted to mention some-thing about my last post, particularly regarding short trades in Fridays enviornment.

 

Obviously at some point, be it for each individual it occured at different time, it was obvious that the we broke of a contraction base (consolidation,value, not important what its called) and formed a strong directional price move up.

As far as the magnitude of the up move, well, that really depends on each traders analysis. if the traders analysis is telling him that this a trend and should not be faded until xyz occurs then thats what the trader should do, provided that he has confidence in his approach.

 

On a day like today if I was lucky to get positioned long early in the day and later at some point in the day I have good solid reason that we may reverse I will......

 

A. Dump all my longs once confirmed and look for short reversal trades only.

B. Dump some of my long position while at same time scalp the long and short side.

C. Hold all my long position while at the same time scalp the short side.

 

For me personally todays price move up which occurred on high volatility, that is something that I only fade if there is a strong reason to do so and only after I have confirmation, some of the reasoning is because of what occured early this week, but the key point is to have a solid reason, else one is functioning from the hip and that does not have a happy ending.

That said, timing and good understanding of reversal is key for these type of trades. Therefor if ones timing is not percise the risk is much higher. I tend to test these potential reversal with low risk and at worst make a scalp out of it and at best hit a homerun. In short a little after 1300 est I had enough reason to start consider short trades. After 1300 est, I didnt get the reversal and break, yet I gave it a shot and settled for some modest scalps.

Edited by sep34

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pappo, I appreciate you taking the time to post. As I've said before, this thread is simply about one trader's approach to the markets. It isn't about the only way to trade or the best way to trade. I simply wanted to highlight the use of MP in my trading. Therefore, this thread only reflects my thinking about the markets based on my trading timeframe. I try to post as many charts as possible so that readers can see exactly what it is that I'm seeing and why I'm making the comments that I make. The point I was trying to make is that from an MP standpoint, if you're trading value and not price, generally speaking, you do not want to short on a day where value is developing higher. Trading value and not price is one of my basic trading principles and is an important point to reiterate in a thread like this one, where MP is the theme. But I can certainly understand you justifying a short trade in Friday's market based on a different trading style and timeframe. I think that point was well made in your last post.

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Well, this brings me to the end of this thread and I want to thank everyone who has taken the time to read it and participate in it. I don't think I could do much more in this thread to give you a better sense of how I use MP in my trading, which was my goal. As Jim Dalton said in Markets in Profile, "Structuring and reading market generated information via the Market Profile is about identifying opportunities where risk is considerably less than the potential reward." Those that simply use MP to trade blindly off of the value area, initial balance, etc. is missing the point of how powerful MP is as a trading tool. To trade that way, one is basically putting MP in the same class as trading off of pivots, fibonacci, moving averages, oscillators, etc. and the point of this thread would have been missed.

 

People have been asking me what resources I would recommend for learning Market Profile. By far, the best MP resources that I have found to be most useful in my trading, and which have already been mentioned by others at TL, are Jim Dalton's books, Mind over Markets and Markets in Profile, and his website at Welcome to DLC Profiles. I have also learned from reading Pete Steidlmayer's books, Markets & Market Logic and Steidlmayer on Markets. Since Feb 2006, I have gravitated to anything related to Market Profile and am aware of just about everything out there related to MP. I think learning about different ways of using MP was an essential step for getting to the point where I am as a trader today. Since the beginning of this year, I no longer try to keep up with new MP educational offerings. It's amazing how much more time I have on my hands now and how much more simpler things are for me.

 

James and moderators, please close this thread when you have time. Thanks.

 

Good luck to all with your trading!

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